S&P Global US Manufacturing PMI™: Renewed Decline in May

The May S&P Global US Manufacturing PMI™ dropped for the first time in five months to 48.4. The latest figure moves the index back into contraction territory after a brief 1-month stint in expansion territory. The May reading is slightly below the forecast of 48.5.

Here is an excerpt from Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, in the latest press release:

“May saw a renewed deterioration of business conditions in the US manufacturing economy which will add to concerns about broader economic health and recession risks.

“Although a record improvement in supplier delivery performance helped manufacturers fulfil back orders in May, generating a third successive monthly rise in output, the overall rate of production growth remained disappointingly meagre thanks to a further drop in new order inflows.

“Unless demand picks up, production growth will move into decline seen as it is clearly unsustainable to rely solely on backlogs of orders, which are now being depleted at the fastest rate for three years. Hence companies are cutting back sharply on their input buying and seeking to minimise inventory, tightening their belts for tough times ahead.

“All of this is of course disinflationary, with manufacturers and their supply chains having seen pricing power shift rapidly from the seller to the buyer over the course of the past year, resulting in a dramatic cooling of industrial price pressures.

“We are likely to see further downward pressure on both output and prices for goods in the coming months, thanks to the demand environment which has been hit by higher interest rates, the increased cost of living, economic uncertainty and a post-pandemic shift in spend from goods to services.

“The one area of resilience is the labour market, as firms continued to take on more staff to fill long-empty vacancies, though we should bear in mind that employment is typically a lagging indicator. It does nevertheless point to some upward pressure on wages.” [Press Release]

Background on the S&P Global US Manufacturing PMI

The S&P Global US Manufacturing PMI™ measures the activity level of purchasing mangers in the manufacturing sector through a questionnaire of ~800 manufacturers. The reported headline number is a weighted average of New Orders, Output, Employment, Suppliers' Delivery Time, and Stocks of Purchases. The S&P Manufacturing PMI is a diffusion index, meaning that a reading above 50 indicates expansion in the sector and a reading below 50 indicates contraction.