May PMI Rebounds as Optimism Mixes with Caution

Sparking hopes that the manufacturing downturn sparked by the global pandemic may be starting to reverse, the monthly PMI Index from the Institute for Supply Management rose 1.6 percentage points in May to 43.1%.

The index still finished well below the manufacturing growth level of 50% and just slightly above the 42.8% overall economic growth threshold. Still, the rebound is the first time the index had improved since the beginning of the year, sparking hope that the decline may have found its bottom.

“Three months into the manufacturing disruption caused by the coronavirus (COVID-19) pandemic, comments from the panel were cautious—two cautious comments for every one optimistic comment—regarding the near-term outlook,” said Timothy Fiore, chairman of the Institute for Supply Management Manufacturing Business Survey Committee. “As was the case in April, the PMI indicates a level of manufacturing-sector contraction not seen since April 2009; however, the trajectory improved.”

That was confirmed by the improvement in several key components of the index:

  • New Orders Index: 31.8%, up 4.7 percentage points.
  • Production Index: 33.2%, up 5.7 percentage points.
  • Employment Index:  32.1%, up 4.6 percentage points.

There still were plenty of warning signs, Fiore noted. “Demand contracted heavily again, with the New Orders contracting at a strong level, again pushed by New Export Orders contraction; both indexes contracted at slower rates,” he said. “Customers’ Inventories Index returning to a level considered a positive for future production, and Backlog of Orders Index remaining in strong contraction territory, in spite of weak production during the period.”

Committee members also expressed a mix of concern and optimism as the world slowly started to reopen in the pandemic. Among the comments:

  • “Despite the COVID-19 issues, we are seeing an increase of quoting activity. This has not turned into orders yet, but it is a positive sign.” (Computer & Electronic Products)
  • “Current conditions in the automotive, construction, oil and gas, agriculture equipment, and tube/pipe markets are all adversely impacting our business results.” (Chemical Products)
  • “We see an issue with suppliers that are affecting production. At the same time, social distancing measures in [the] manufacturing plant and customer demand are impacting the rate of production.” (Transportation Equipment)
  • “Increased COVID-19 sales in the food business has really stressed our production capabilities.” (Food, Beverage & Tobacco Products)
  • “Fuel sales demand are beginning to rebound in May as stay-at-home orders are lifted across the country.” (Petroleum & Coal Products)
  • “Returning to full production for automotive, ramp-up will still depend on speed of automotive start-ups. We have built up inventory to stock. Ready to ship.” (Fabricated Metal Products)
  • “Business activity remains strong for consumable applications and very weak in durable segments.” (Plastics & Rubber Products)
  • “We have been fortunate that most of our customer base is considered to be a part of the critical workforce, so we have been running at around 80% of our normal production volume.” (Primary Metals)
  • “Getting out from under several suppliers being closed worldwide. Also, looking at what really needs to be in China.” (Machinery)
  • “We see a lot of positive signs, despite what’s going on. People seem to continue to be building and looking to projects for fall of 2020 and beyond. There is good optimism out there.” (Nonmetallic Mineral Products)

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