PMI in May Drops to Lowest since September 2009

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U.S. manufacturers registered a notable slowdown in production growth in May, with the pace of expansion easing to a marginal rate. The rise was the smallest since June 2016, with firms often stating that demand conditions had softened. Increased output was generally linked to efforts to clear backlogs amid a lack of new work.

New Orders

The seasonally adjusted New Orders Index posted below the crucial 50.0 no change mark for the first time since August 2009 in May to signal a decrease in new business received by manufacturers. Panellists commonly attributed the decline to softer client demand, with some customers postponing orders. Although the contraction was only fractional, it indicated a notable turnaround from April's solid upturn.

New Export Orders

New export orders received by goods producers fell in May. Though marginal, the decrease in new business from abroad was the first since July 2018. That said, the fall was the quickest since April 2016. Anecdotal evidence indicated that weaker client demand drove the contraction, with economic and political uncertainty dampening order growth.

Backlogs of Work

Backlogs of work at manufacturers were unchanged in May, following a solid expansion in April. Where a rise was reported, panellists linked this to ongoing inflows of new work. Others, however, stated that a slowdown in demand had allowed existing orders to be processed in a more timely manner.

Stocks of Finished Goods

Adjusted for seasonal factors, the Stocks of Finished Goods Index signalled a marginal decline in post-production inventories in May. Panellists suggested the fall was often due to deliberate efforts to deplete stocks following a slowdown in client demand. Though only slight, the renewed decrease in stock levels was the largest since last December.

Employment

Employment across the manufacturing sector continued to increase in May, despite softer output growth. Anecdotal evidence stated that larger workforce numbers were linked to the replacement of voluntary leavers and retirees. Nevertheless, the rise in staffing levels was the slowest since March 2017.

Output Prices

In line with the trend for input costs, average prices charged by manufacturers increased at a softer pace in May. Notably, the rate of inflation was the slowest since November 2016, with some firms suggesting efforts to remain competitive had restricted their overall pricing power.

Input Prices

Input prices increased modestly in May, with the rate of inflation easing for the seventh successive month. Where a rise was reported, panellists linked this to the ongoing impact of tariffs and higher supplier prices. The pace of inflation was however the slowest since July 2017, with around 84% of survey respondents registering no change in cost burdens. Some firms noted that a moderation in steel prices had relieved pressure on cost burdens.

Suppliers’ Delivery Times

Adjusted for seasonal factors, the Suppliers' Delivery Times Index signalled a further deterioration in vendor performance across the manufacturing sector in May. Delays were often linked by panellists to shortages at suppliers. Nonetheless, lead times lengthened at a marginal rate that was the least marked since the current sequence of deterioration began in January 2017.

Quantity of Purchases

Purchasing activity across the manufacturing sector continued to increase in May, albeit merely fractionally. Although some firms stated that the rise was due to greater production requirements, others had reduced their input buying due to lower new order volumes and efforts to clear inventories. Furthermore, the expansion was the slowest since the current sequence of growth began in May 2016.

Stocks of Purchases

Pre-production inventories at goods producers declined for the first time for two years in May. Although only slight, the contraction was attributed to efforts to reduce stock levels due to softer demand conditions.

Future Output

Output expectations across the manufacturing sector remained historically subdued in May. Moreover, the degree of confidence regarding production over the coming year was the joint-lowest in the series history (since July 2012), as firms highlighted concerns that included the prospect of further tariffs, reduced new orders from large customers and softer overall demand conditions.

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