ISM Manufacturing PMI Preview: Stable At Moderate Expansion

• ISM manufacturing PMI is expected to rise slightly
• The US/China trade dispute and Brexit take a toll on optimism
• Manufacturing employment remains healthy

The Institute for Supply Management will release its purchasing managers’ index in manufacturing at 10:00 am EDT, 14:00 GMT on Monday June 3rd.

Forecast

The purchasing managers’ index (PMI) for the manufacturing sector is predicted to rise slightly to 53.0 in May from 52.8 the prior month. The prices paid index is expected to increase to 52.0 from 50.0.  The employment index was at 52.4 in April down from 57.5 in March. New orders were at 51.7 in April off from 57.4 in March

US Manufacturing: Good but no longer heady

The performance of the US manufacturing sector in 2017 and 2018 was nothing short of stellar.  Long considered by economists to be in a state of permanent managed decline the revival in confidence and employment brought income and prospects back to many small communities in the US industrial rustbelt.
From January 2017 through April 2019 the US economy created an average of 17,250 jobs each month for a total of 483,000 new employees. Many of these positions were in the small to mid-sized manufacturing concerns whose employment had been hardest hit by international competition and the sourcing of factories overseas.

Reuters

Manufacturing PMI

The boom in manufacturing was reflected in the PMI reading which for a year from the middle of 2017 registered the best sustained readings in a generation. The 61.3 score for the index in August 2018 was the best since 2004 and the 12-month average that month of 59.24 was the highest since November 2004.

FXStreet

The index for new orders to US factories was above 60 for the best part of 2017 and 2018 which was the best performance since the financial crisis and recession.

Reuters

Economic Reality and the shutdown

The partial government shutdown in the latter part of December and the first three weeks of January ended the euphoria of the prior two years. Though the US economy grew at a 3.1% annualized rate in the first quarter, considerably faster than the 2.2% pace of the final three months of 2018 optimism in the manufacturing sector fell sharply in January and has stabilized at lower levels.

Instead of the 56.3 to 61.3 range of the prior 18 months the range has shifted down to 52.8 to 56.6. 

This is well above the index division between expansion and contraction at 50 and is better than the majority of post-recession scores. It reflects both the drop in orders since the New Year and the potential impediments to global growth from the US/China trade spat and the British exit from the EU. Optimism is unlikely to fully return until those disputes are settled.

Image sourced from Pixabay