ISM Manufacturing Index: The Institute for Supply Management’s manufacturing index moved down 0.4% (m/m) to 46.9 for May 2023; this value is weaker than the forecast of 50. The new orders sub-index scored at 42.6. The reading indicated a seventh consecutive month of contraction in the manufacturing sector, as companies manage outputs to better align with demand in the first half of 2023 and prepare for growth in the late summer/early fall period.

The ISM manufacturing index is based on surveys of 300 purchasing managers in 17 industries. The survey is a diffusion index calculated as a percent of responses. A value of 50 is neutral, while less than 50 denotes contracting manufacturing activity and greater than 50 denotes expanding activity.

Figure 1 breaks down the composite index and sub-indexes. The backlogs sub-index was 37.5 this month, while the inventories sub-index was 45.8.

The four manufacturing industries that reported growth in May are: Nonmetallic Mineral Products; Furniture & Related Products; Transportation Equipment; and Fabricated Metal Products. The 14 industries reporting contraction in May, in the following order, are: Wood Products; Primary Metals; Apparel, Leather & Allied Products; Textile Mills; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Miscellaneous Manufacturing; and Machinery.

“Business is returning to pre-pandemic levels. There is increased demand in commercial/government markets and reduced demand in residential/consumer markets.” [Machinery]

At Gerdau, we closely monitor the ISM manufacturing index since it is an excellent barometer of the present strength, as well as a window on the likely short-run future, of U.S. manufacturing.