ISM Data Shows Significant Slowdown

From Wall Street Journal

Monthly growth slowed very significantly in the manufacturing sector during May, according to the Institute For Supply Management whose headline composite dropped 6.9 points to a much lower-than-expected 53.5. Importantly, new orders slowed a very significant 10.7 points to 51.0, still over 50 to indicate growth compared to April but well under April to indicate a much slower rate of growth. Manufacturers drew heavily on backlog orders which fell 10.5 points to 50.5.

Other readings show a significant slowing in production, a moderate slowing in hiring, and decreasing delays in delivery times that are consistent with slowing conditions. Inventories interestingly contracted in the month, suggesting that manufacturers were quick to keep levels down given slowing demand. It also perhaps reflects supply shortages tied to Japan.

The ISM manufacturing index (formerly known as the NAPM Survey) is constructed so that any level at 50 or above signifies growth in the manufacturing sector. A level above 43 or so, but below 50, indicates that the U.S. economy is still growing even though the manufacturing sector is contracting. Any level below 43 indicates that the economy is in recession.

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