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Purchasing Managers Index — Nonmanufacturing

June 5, 2017

The Institute for Supply Management not only publishes an index of manufacturing activity each month, they publish two days later a survey of non-manufacturing firms — which largely consists of services. The index declined 1.7 points in May to 60.7 after having jumped points in April.   At its May level the ISM group estimates GDP growth of 3.1%.

The orders component  fell 5.5 points in May to 57.7 after having jumped 4.3 points in April.  The April level for orders was  highest level since July 2005  and suggests that the service sector will continue to grow briskly for some time to come.  Comments from respondents include: “New projects starting up.”

The ISM non-manufacturing index for employment climbed 6.4 points in May to 57.8 after having declined 0.2 point tin April.  However, this series has been fairly volatile in other recent months with big increases followed by big declines a rather common occurrence.  Jobs growth should continue in upcoming months at about the same pace we  have seen of roughly 170 thousand per month. Comments from respondents include: “increased demand for services” and “business expansion and seasonal growth”.

Finally,  the price component fell 5.4 points in May to 59.2 after having risen 4.1 points in April.  Thus, prices rose fairly sharply in April.  All sixteen industries surveyed reported higher prices in April.  After several months of climbing steadily higher, price inflation amongst non-manufacturing firms took a breather in May.

Stephen Slifer


Charleston, SC

Purchasing Manager’s Index

June 1, 2017

The Institute for Supply Management’s index of conditions in the manufacturing sector remained strong in May.  The index rose 0.1 point in May to 58.9 after having declined 2.4 points in April. The February level of 57.7 was the highest level for this index in more than two years (August 2014).  Clearly manufacturing activity is in the early stages of a gradual recovery.  If the PMI for May is annualized it corresponds to a 3.7% increase in GDP growth.  If one uses the January through May average PMI it would imply a 4.0% increase in GDP growth this year.

It is important to recognize that the overall index is the compilation of a number of different components — production, orders, employment, supplier deliveries, inventories, prices, the backlog of orders, exports, and imports.

The orders component roses 2.0 points in May to 59.4 after having declined 7.0 points in April.  The February level of 65.1 was the highest levels for the order increase in seven years.   The ISM indicates that an orders index above 52.3  is consistent with an increase in the Census Bureau’s series on factory orders.  It appears that orders have really begun to accelerate which will boost factory production in the months ahead.

In addition to orders, actual production has behaved in a similar manner.  Thus, the pace of production has already begun to climb and given the rise in orders it should gather momentum as we move throughout 2017.  The production index fell 1.5 points in May to 57.1 after having rise 1.0 point in April.  A level above 51.4 is consistent with an increase in the Federal Reserve’s industrial production figure.

The employment index rose 1.5 points in May to 53.5 after having declined 6.9 points in April.  The March level of 58.9 was the highest level for this index since  June 2011.  The employment index had been right about at the break-even point of 50.0 for almost a year but has now broken out to the upside in the  past five months. While the economy is currently cranking out about 200 thousand jobs per month, the factory sector thus far has produced few of them.  The jobs are coming from services and construction.  An ISM index above 50.5 is consistent with the Bureau of Labor Statistics data on manufacturing employment.  Hopefully, 2017 will bring with it at least some moderate increases in factory jobs.

The backlog of orders fell 2.0 points in May to 55.0 after having fallen 0.5 point in April.  The backlog had been  fairly steady for a long while, but now orders are rising and the backlog has begun to climb in the pasts four months which will encourage still faster production in the months ahead.

The prices paid component fell 8.0 points in May to 60.5 after having fallen 2.0 points in April.  The March level of 70.5 was the highest reading since May 2011.  Survey respondents reported that prices rose for 15 of the 18 manufacturing prices surveyed so the run-up in commodity prices is widespread and not just oil .  This is an important development.  Prices had been falling steadily  since October 2014 (when oil prices began to fall) which pulled down the CPI and PPI measures of inflation.  Now that process has clearly come to an end and will result in somewhat faster inflation readings in the months ahead.  A prices index level above 52.4 is consistent with an increase in the BLS producer prices index for intermediate materials.

We believe that the economy is  expanding at a moderate pace.  We expect GDP growth of 2.4% in 2017 and 2.8% in 2018.  During that period of time the manufacturing sector will once again begin to expand slowly.

Stephen Slifer


Charleston, SC