Manufacturing gauge rises in May
Experts see early signs of stabilization as economies reopen
A closely watched measure of U.S. manufacturing rose in May for the first time in four months, suggesting the industry is beginning to stabilize at a depressed level after a pandemic-driven plunge.
The Institute for Supply Management said Monday that its gauge improved slightly to 43.1 last month from an 11-year low of 41.5 in April. Readings below 50 indicate shrinking activity. The purchasing managers group’s gauges of production and factory employment edged up from multi-decade lows, while an index of orders rose after the largest single-month slump since 1951.
The results were about what economists expected.
While the data indicates producers are beginning to claw their way back as states begin reopening battered economies, there are still significant challenges from weak export markets, record unemployment and lean capital spending budgets.
“I believe we can see or are at the bottom of the toboggan run, which is a positive for June in spite of May’s numbers,” Timothy Fiore, chairman of the institute’s Business Survey Committee, said on a call with reporters. May was a transition month, and demand, output and employment should return to some extent in June, he said.
Six of 18 manufacturing industries reported growth, including food, paper, cloth
ing, mineral companies and furniture-makers. Eleven contracted last month, led by printing, primary metals and makers of transportation equipment.
The group’s index of new orders increased to 31.8 from an April reading of 27.1. Only four industries reported growth in bookings during May. The group’s production measure rose to 33.2 from 27.5.
The institute’s gauge of factory inventories rose to a one-year high of 50.4, indicating slightly more elevated stockpiles that may limit production.
Meanwhile, the index of supplier deliveries fell for the first time since October, a sign that bottlenecks and transportation delays are finally beginning to ease.
The pandemic, and the lockdowns and travel restrictions meant to combat it, brought economic activity to a near-standstill. U.S. gross domestic product fell at a 5% annual rate from January-March and is expected to drop by a much higher rate from AprilJune.
The Commerce Department said last week that orders for big-ticket manufactured goods dropped 17.2% in April after falling 16.6% in March.
“Looking ahead, conditions may start to gradually improve in June but manufacturing faces significant travails on the long road to recovery,” economists Oren Klachkin and Gregory Daco of Oxford Economics wrote in a research report. Among the problems factories face are weak demand, disruptions in supplies and heightened uncertainty.
The pain is not limited to the United States. J.P. Morgan reported Monday that global manufacturing production fell for the fourth-straight month in May. Manufacturing output fell in 27 of the 28 countries for which results were available. The exception was China, where the virus originated and where the first economic recovery began after a lockdown.
Manufacturing was already hurting before the outbreak brought the economy to a near-standstill in March. The institute’s manufacturing index has signaled contraction in eight of the past 10 months. President Donald Trump’s trade war with China had raised costs and created uncertainty that paralyzed investment decisions, and the world economy had been losing momentum.
In a separate report Monday, U.S. construction spending fell 2.9% in April, the largest drop in 18 months, with broad declines across all building activity as shutdowns hobbled projects and workers were told to stay home.
The Commerce Department said the April decline was the biggest monthly drop since a 3% fall in October 2018. It followed a basically flat reading in March.
However, spending was actually up 3% from April 2019.
Spending on residential construction dropped 4.5% in April, with single-family construction down 6.6% and the smaller apartment segment down 9.1%.
Construction of nonresidential projects fell 1.3% — with office buildings, hotels and the sector that includes shopping centers all declining.
Spending on construction by the federal government and state and local governments was down 2.5% in April.
There is hope that with government stay-at-home orders being lifted, construction activity may rebound. However, many economists are worried that the recovery from the sharp recession, which has seen millions of workers lose their jobs, may take a good deal of time.
Nancy Vanden Houten, an economist with Oxford Economics, said she expected a steep drop in construction spending in the second quarter, followed by a slow recovery that will be held back by budgetary pressures.
“Public construction, dominated by state and local governments, will likely be depressed as budgets are devastated by the pandemic,” she said.