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United States PMI May 2019

United States: ISM manufacturing index declines again in May on easing supply chain pressure

The Institute for Supply Management (ISM) manufacturing index fell from 52.8 in April to 52.1 in May, missing market expectations of 53.0. Nonetheless, the index remained above the 50-point threshold that separates expansion from contraction in the sector, where it has been for 33 consecutive months.

Despite the lower headline reading in the month, demand indicators held up reasonably well in May. Output growth slowed somewhat, but new orders firmed up on the back of a rebound in export demand. Nevertheless, backlogs of orders—which had been growing robustly in previous months—contracted, indicating that demand momentum was overall slowing. In spite of this, employment gains accelerated.

Looking at supply side indicators, it is apparent that pressures on the supply chain eased in May. Supplier delivery times increased at a much slower rate, while imports again contracted, at a marginally faster clip than in April, and firms’ inventories rose only slightly. Meanwhile, customers’ inventories continued to fall, but at a somewhat slower pace than in the previous month.

Commenting on this month’s reading, researchers at Nomura noted:

“Of the nine industries that reported comments, five mentioned tariffs and increased uncertainty as a result of trade tensions. The report overall is consistent with our view that increased trade tensions will exert a modest drag on business confidence and economic activity. Some respondents highlighted continued uncertainty due to delays at the US southern border and that concern about US-Mexico trade will likely be intensified by President Trump’s statement last week about imposing broad-based tariffs on imports from Mexico, effective 10 June.”

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