Contraction in US manufacturing slows in May, overall economy shows expansion


The Institute for Supply Management’s index of US manufacturing activity, the PMI, rose in May to a reading of 43.1% from April’s reading of 41.5%. The PMI, which is based on data from a panel of purchasing managers, had contracted sharply at the outset of Covid-19 in the US. While its May reading indicates contraction in manufacturing, it does point to growth in the overall economy.

The May PMI reading “indicates expansion in the overall economy after April’s contraction, which ended a period of 131 consecutive months of growth,” said Timothy Fiore, chair of the institute’s manufacturing business survey committee.

Readings above 50% indicate the manufacturing economy is, generally, expanding; readings below 50% indicate contraction. This shows that US manufacturing activity contracted in May, albeit at a slower rate than in April. However, a PMI above 42.8% over a period of time generally indicates an expansion of the overall economy. The May PMI, therefore, indicates the overall economy grew slightly in May, according to the ISM.

“May appears to be a transition month, as many panelists and their suppliers returned to work late in the month,” Fiore said. “However, demand remains uncertain, likely impacting inventories, customer inventories, employment, imports and backlog of orders.”

In addition, the employment portion of the index rose to a reading of 32.1% in May, up from 27.5% in April. That indicates contraction is continuing but at a slower rate. Fiore said that employees returning to work in late May will positively impact this portion of the index in June.