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US manufacturing industry softens in May: ISM

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US manufacturing industry softens in May: ISM

The US manufacturing industry expanded at a slower rate than forecast in May, as manufacturers reported unexpected softness in new orders and employment.

The Institute for Supply Management’s gauge of US manufacturing industry fell from 54.9 to 53.2. A median estimate of economists called for 55.4. The US manufacturing industry has been above the 50 mark that separates expansion from contraction for twelve consecutive months.

Seventeen of the 18 manufacturing industries advanced in May, led by furniture & related products, electrical equipment, appliances & components, and primary metals. No industry reported contraction last month, ISM data showed.

New orders expanded at a slower rate than the previous month, as the new orders sub-index declined 1.8 percentage points to 53.3. Fourteen of the 18 manufacturing industries reported increased new orders in May, led by electrical equipment, appliances & components, machinery, and wood products. The only industry to report a decrease was computer & electronic products.

Production levels eased somewhat in May. However, 15 industries reported growth in production and only one industry, textile mills, reported a decline.

Exports, having increased in each of the last eighteen months, eased slightly in May. Twelve industries reported growth in new export orders, ISM data showed.

A decline in new orders put downward pressure on employment, which expanded at a slower rate last month. The employment sub-index declined 2.8 percentage points to 51.9, as four industries reported a decrease.

Jobs growth in the US economy accelerated in April, rising 288,000. That was the fastest monthly clip in more than two years. The Labor Department will report on May nonfarm payrolls at the end of the week. Economists forecast more than 200,000 jobs were created in May.

Manufacturers noted several challenges last month, including raw material pricing and supply tightness.

“Increasing demand for product is creating supply and sourcing challenges,” said one manager from the food, beverage & tobacco products industry.

“Supply is very tight and prices are increasing,” said a manager from fabricated metal products, who was speaking about steel bars for automotive applications.

“Volumes picking up in some sectors, but profitability still elusive. Suppliers indicate similar difficulties in getting price increases,” noted another panel member from the chemical products industry.

In a separate report, Markit Group said US manufacturing activity expanded sharply in May, led by the biggest rise in production levels in more than three years. Markit’s US manufacturing gauge rose from 55.4 to 56.4, a three-month high.

According to Markit chief economist Chris Williamson, “output is growing at the fastest rate since prior to the financial crisis.”

Both ISM and Markit will report on the US service economy on Wednesday.

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