Economic activity in the manufacturing sector contracted in May for the first time since November 2012, and the overall economy grew for the 48th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management^™Manufacturing Business Survey Committee. "The PMI^™ registered 49 percent, a decrease of 1.7 percentage points from April's reading of 50.7 percent, indicating contraction in manufacturing for the first time since November 2012 and only the second time since July 2009. This month's PMI^™ reading is at its lowest level since June 2009, when it registered 45.8 percent. The New Orders Index decreased in May by 3.5 percentage points to 48.8 percent, and the Production Index decreased by 4.9 percentage points to 48.6 percent. The Employment Index registered 50.1 percent, a slight decrease of 0.1 percentage point compared to April's reading of 50.2 percent. The Prices Index registered 49.5 percent, decreasing 0.5 percentage point from April, indicating that overall raw materials prices decreased from last month. Several comments from the panel indicate a flattening or softening in demand due to a sluggish economy, both domestically and globally."

Of the 18 manufacturing industries, 10 are reporting growth in May in the following order: Printing & Related Support Activities; Nonmetallic Mineral Products; Fabricated Metal Products; Wood Products; Furniture & Related Products; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Machinery; and Paper Products. The six industries reporting contraction in May — listed in order — are: Miscellaneous Manufacturing; Transportation Equipment; Chemical Products; Plastics & Rubber Products; Computer & Electronic Products; and Primary Metals.

WHAT RESPONDENTS ARE SAYING …

• "Customers are anticipating resin price decreases and holding back orders." (Plastics & Rubber Products)
• "Slight uptick in overall business but not substantial." (Textile Mills)
• "Government spending has tightened, which has moved out program awards and caused some reduction in force." (Computer & Electronic Products)
• "Market outlook is relatively flat, with some promise of raw materials inflation relaxing." (Electrical Equipment, Appliances & Components)
• "General economy seems sluggish and pensive. Buyers are not buying much beyond lead times." (Fabricated Metal Products)
• "Downturn in European and Chinese markets is having a negative effect on our business." (Machinery)
• "We are having a difficult time hiring skilled employees." (Transportation Equipment)
• "Business continues to increase, but over the past 20 days we have seen the trend flatten." (Furniture & Related Products)
• "Market was holding strong until mid-month — then softened." (Wood Products)
• "Decline in sales for FYQ2 over same period a year ago due to softer demand [in] both domestic and exports." (Chemical Products)

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price
Caustic Soda (2); Corrugated Boxes (10); Corrugated Packaging; Lumber (5); and Natural Gas (2).

Commodities Down in Price
Polypropylene; Stainless Steel; Steel (2); Steel — Hot Rolled; and Sugar.

Commodities in Short Supply
Lumber — Hardwood, Pine and Plywood is the only commodity reported in short supply.

Note: The number of consecutive months the commodity is listed is indicated after each item.

MAY 2013 MANUFACTURING INDEX SUMMARIES

PMI™
Manufacturing contracted in May as the PMI^™ registered 49 percent, a decrease of 1.7 percentage points when compared to April's reading of 50.7 percent. This month's reading reflects the second month of contraction in the manufacturing sector sinceJuly 2009, when the index registered 49.9 percent. It is also the lowest reading for the PMI^™ since June 2009, when the index registered 45.8 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI^™ in excess of 42.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the May PMI^™ indicates growth for the 48th consecutive month in the overall economy, and indicates contraction in the manufacturing sector for the first time since November 2012. Holcomb stated, "The past relationship between the PMI^™ and the overall economy indicates that the average PMI^™ for January through May (51.7 percent) corresponds to a 3 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI^™ for May (49 percent) is annualized, it corresponds to a 2.1 percent increase in real GDP annually."

THE LAST 12 MONTHS

New Orders
ISM's New Orders Index registered 48.8 percent in May, a decrease of 3.5 percentage points when compared to the April reading of 52.3 percent. This represents contraction in new orders for the first time since December 2012, when the index registered 49.7 percent. A New Orders Index above 52.2 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

The seven industries reporting growth in new orders in May — listed in order — are: Printing & Related Support Activities; Nonmetallic Mineral Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Wood Products; Furniture & Related Products; and Machinery. The eight industries reporting a decrease in new orders during May — listed in order — are: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Petroleum & Coal Products; Transportation Equipment; Paper Products; Chemical Products; and Computer & Electronic Products.

Production
ISM's Production Index registered 48.6 percent in May, which is a decrease of 4.9 percentage points when compared to the 53.5 percent reported in April. This month's reading indicates contraction in production for the first time since August 2012, when the index registered 48.9 percent. It also reflects only the second month of contraction for the index since May 2009. An index above 51.2 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

The nine industries reporting growth in production during the month of May — listed in order — are: Printing & Related Support Activities; Wood Products; Nonmetallic Mineral Products; Fabricated Metal Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Transportation Equipment; and Machinery. The five industries reporting a decrease in production in May are: Miscellaneous Manufacturing; Plastics & Rubber Products; Petroleum & Coal Products; Paper Products; and Computer & Electronic Products.

Employment
ISM's Employment Index registered 50.1 percent in May, which is 0.1 percentage point lower than the 50.2 percent reported in April. This month's reading indicates growth in employment for the 44th consecutive month, but at a slightly slower rate. An Employment Index above 50.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, 12 reported growth in employment in May in the following order: Printing & Related Support Activities; Plastics & Rubber Products; Apparel, Leather & Allied Products; Fabricated Metal Products; Wood Products; Furniture & Related Products; Paper Products; Petroleum & Coal Products; Primary Metals; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; and Machinery. The four industries reporting a decrease in employment in May are: Miscellaneous Manufacturing; Transportation Equipment; Computer & Electronic Products; and Chemical Products.

Supplier Deliveries
The delivery performance of suppliers to manufacturing organizations was faster in May as the Supplier Deliveries Index registered 48.7 percent, which is 2.2 percentage points lower than the 50.9 percent reported in April. The index has alternated between slower and faster supplier deliveries for the past four months. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The five industries reporting slower supplier deliveries in May are: Furniture & Related Products; Machinery; Petroleum & Coal Products; Fabricated Metal Products; and Electrical Equipment, Appliances & Components. The six industries reporting faster supplier deliveries in May — listed in order — are: Primary Metals; Transportation Equipment; Miscellaneous Manufacturing; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Chemical Products. Seven industries reported no change in supplier deliveries in May compared to April.

Inventories*
The Inventories Index registered 49 percent in May, which is 2.5 percentage points higher than the 46.5 percent reported in April. This month's reading indicates that respondents are reporting inventories contracted in May for the third consecutive month, but at a slower rate than in April. An Inventories Index greater than 42.7 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The seven industries reporting higher inventories in May — listed in order — are: Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Paper Products; Fabricated Metal Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Machinery. The three industries reporting decreases in inventories in May are: Plastics & Rubber Products; Chemical Products; and Transportation Equipment. Eight industries reported no change in raw materials inventories in May compared to April.

Customers' Inventories*
The ISM Customers' Inventories Index registered 46 percent in May, which is 1.5 percentage points higher than in April when the index registered 44.5 percent. This month's reading indicates that customers' inventories are considered too low, but higher than reported in April. Customers' inventories have registered at or below 50 percent for 50 consecutive months. A reading below 50 percent indicates customers' inventories are considered too low.

The four manufacturing industries reporting customers' inventories as being too high during the month of May are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Miscellaneous Manufacturing; and Food, Beverage & Tobacco Products. The eight industries reporting customers' inventories as too low during May — listed in order — are: Paper Products; Plastics & Rubber Products; Primary Metals; Computer & Electronic Products; Machinery; Fabricated Metal Products; Transportation Equipment; and Chemical Products. Six industries reported no change in customers' inventories in May compared to April.

Prices*
The ISM Prices Index registered 49.5 percent in May, which is a decrease of 0.5 percentage point compared to the April reading of 50 percent. This also indicates that raw materials prices decreased in May for the first time since July 2012. The Prices Index has decreased by 12 percentage points in the last three months. In May, 19 percent of respondents reported paying higher prices, 20 percent reported paying lower prices, and 61 percent of supply executives reported paying the same prices as in April. A Prices Index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

Of the 18 manufacturing industries, seven reported paying increased prices during the month of May in the following order: Nonmetallic Mineral Products; Furniture & Related Products; Wood Products; Chemical Products; Transportation Equipment; Miscellaneous Manufacturing; and Food, Beverage & Tobacco Products. The seven industries reporting paying lower prices during May — listed in order — are: Textile Mills; Primary Metals; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Machinery; Fabricated Metal Products; and Computer & Electronic Products.

Backlog of Orders*
ISM's Backlog of Orders Index registered 48 percent in May, which is 5 percentage points lower than the 53 percent reported in April. This is the first month of contracting order backlogs since January 2013, when the index registered 47.5 percent. Of the 82 percent of respondents who reported their backlog of orders, 23 percent reported greater backlogs, 27 percent reported smaller backlogs, and 50 percent reported no change from April.

The eight industries reporting increased order backlogs in May — listed in order — are: Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Primary Metals; Wood Products; Fabricated Metal Products; Furniture & Related Products; Transportation Equipment; and Chemical Products. The eight industries reporting decreases in order backlogs during May — listed in order — are: Plastics & Rubber Products; Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Paper Products; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Computer & Electronic Products; and Machinery.

New Export Orders*
ISM's New Export Orders Index registered 51 percent in May, which is 3 percentage points lower than the 54 percent reported in April. This month's reading represents the sixth consecutive month of growth in new export orders, and follows six consecutive months of contraction dating back to June 2012.

The four industries reporting growth in new export orders in May are: Fabricated Metal Products; Food, Beverage & Tobacco Products; Machinery; and Electrical Equipment, Appliances & Components. The four industries reporting a decrease in new export orders during May are: Miscellaneous Manufacturing; Chemical Products; Transportation Equipment; and Computer & Electronic Products. Ten industries reported no change in new export orders in May compared to April.

Imports*
ISM's Imports Index registered 54.5 percent in May, which is 0.5 percentage point lower than the 55 percent reported in April. This month's reading represents the sixth consecutive month that the Imports Index has registered at or above 50 percent.

The six industries reporting growth in imports during the month of May — listed in order — are: Machinery; Fabricated Metal Products; Furniture & Related Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Transportation Equipment. The three industries reporting a decrease in imports during May are: Apparel, Leather & Allied Products; Computer & Electronic Products; and Primary Metals. Nine industries reported no change in imports in May compared to April.

* The Inventories, Customers' Inventories, Prices, Backlog of Orders, New Export Orders and Imports Indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy
Average commitment lead time for Capital Expenditures increased 3 days to 125 days. Average lead time for Production Materials increased 4 days to 62 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies remained the same at 26 days.