The Institute for Supply Management is showing that purchasing managers and suppliers are still not quite in a recessionary mode.  The problem is that this is “barely” the case as some components are contracting even at the national level.  The May Manufacturing ISM Report On Business put the PMI at 53.5%.  This is above the 50.0% line for growth but it is under the 54.0% that was listed as the Bloomberg consensus.

According to the ISM this was the 36th consecutive month of expansion, but this was also a slight drop of 1.3 percentage points from April’s reading of 54.8%.

The New Orders Index continued its growth trend for the 37th consecutive month with a reading of 60.1% in May.  That new orders component is up 1.9 percentage points from April and is also the highest level since April 2011.

The Prices Index for raw materials fell to 47.5 percent in May, which is in the contraction mode.  That might be a positive as long as you are not a deflation hawk.  This was down a massive 13.5 percentage points from April and was the first true contraction since last December.

Comments from the purchasing managers and suppliers generally reflect stable-to-strong orders, with sales showing steady improvement over the first five months of 2012.  Of the 18 industries surveyed, 13 showed growth. There were 4 of the 18 showing contraction: Plastics & Rubber Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; and Transportation Equipment.

Other components showing contraction (under 50.0%) were supplier deliveries at 48.7%, inventories at 46.0%, Customers’ inventories at 43.5%, and backlog of orders at 47.0%. Those same components were the areas of contraction in April as well.

JON C. OGG

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