Huge Miss in May ISM; Manufacturing Now in Contraction; What the Numbers Mean

US Manufacturing as measured by the May 2013 Manufacturing ISM Report On Business® is treading water barely above contraction.

Economic activity in the manufacturing sector contracted in May for the first time since November 2012, and the overall economy grew for the 48th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

ISM at a Glance

Series Data	Apr Index	Mar Index	Percentage Point Change	Direction	Rate of Change	Trend (Months)
PMI™	49.0	50.1	-1.7	Contracting	From Growing	1
New Orders	48.8	52.3	-3.5	Contracting	From Growing	1
Production	53.5	52.2	+1.3	Contracting	From Growing	1
Employment	50.1	50.2	-0.1	Growing	Slower	44
Supplier Deliveries	48.7	50.9	-2.2	Faster	From Slowing	1
Inventories	49.0	46.5	+2.5	Contracting	Slower	3
Customers' Inventories	46.0	44.5	+1.5	Too Low	Slower	18
Prices	49.5	50.0	-0.5	Decreasing	From Unchanged	1
Backlog of Orders	48.0	53.0	-5.0	Contracting	From Growing	1
Exports	51.0	54.0	-3.0	Growing	Slower	6
Imports	54.5	55.0	-0.5	Growing	Slower	4

Synopsis

Last month I stated "Manufacturing employment has grown for 43 months. I expect that trend to break next month. Production was up but inventories were way lower. The drop in inventories, in conjunction with a big slowdown in employment, is likely a leading indicator of future production. The positive surprise that does not fit into the above assessment is that new orders grew at a faster rate. Next month may be telling. I expect the new order divergence to resolve to the downside as the global economy and the US economy are both slowing."

The consensus estimate was for slower growth, but here we are. Manufacturing is in contraction and the economy continues to weaken. Given the plunge in new orders and backlog of orders, jobs and the overall economy will likely weaken as well. Expect that trend of 48 months of economic growth to break next month.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
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