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China, Ukraine Turmoil ‘Suppress’ US Manufacturing Demand

Apparel production led the U.S. manufacturing sector’s economic growth in May, the nation’s supply executives said Wednesday in the latest Manufacturing Institute for Supply Management (ISM) “Report On Business.”

The May Manufacturing Purchasing Manufacturing Index (PMI) registered 56.1 percent, an increase of 0.7 percent from April. Timothy R. Fiore, chair of the ISM Manufacturing Business Survey Committee, said this indicates expansion in the overall economy for the 24th month in a row after a contraction in April and May 2020.

It was also the second-lowest Manufacturing PMI reading since September 2020. A reading above 50 percent indicates that the manufacturing economy is generally expanding, while below 50 percent means it is generally contracting.

“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment,” Fiore said. “Despite the Employment Index contracting in May, companies improved their progress on addressing moderate-term labor shortages at all tiers of the supply chain, according to Business Survey Committee respondents’ comments. Panelists reported slightly lower rates of quits compared to April.”

May was also the second straight month that prices didn’t rise as quickly as they had in the months prior, but instability in global energy markets continues, Fiore noted, while surcharge increase activity appears to be stabilizing across all industry sectors. Sentiment remained strongly optimistic regarding demand, with five positive growth comments for every cautious comment, although panelists continue to cite supply chain and pricing issues as their biggest concerns.

Fifteen manufacturing industries reported growth in May, led by apparel, leather and allied products. The only industry reporting a decrease in May compared to April was furniture and related products.

ISM’s New Orders Index registered 55.1 percent in May, a 1.6 percent increase compared to April, and the 24th consecutive month of growth. A New Orders Index above 52.9 percent usually coincides with an increase in the Census Bureau’s series on manufacturing orders.

Of the 18 manufacturing industries, 11 reported growth in new orders in May, topped by apparel, leather and allied products, while textile mills and furniture and related products were among the six industries reporting no change in new orders in May.

The Production Index rose 0.6 percent to 54.2 percent in May, also up for the 24th consecutive month. An index above 52.4 percent is consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The eight industries reporting growth in production during May were led by apparel, leather and allied products, while the eight industries reporting a decrease in May were topped by textile mills and included furniture and related products.

ISM’s Employment Index fell to 49.6 percent in May, 1.3 percent below the April reading. An Employment Index above 50.5 percent is usually consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

“The index contracted after eight consecutive months of expansion,” Fiore said. “This is the lowest reading since November 2020, when the index registered 48.1 percent…Survey panelists’ companies are still struggling to meet labor management plans, though with more signs of improvement…An overwhelming majority of panelists again indicate their companies are hiring, and for the second month, 89 percent of Employment Index comments were hiring focused.”

Of 18 manufacturing industries, eight industries reported employment growth in May, topped by apparel, leather and allied products. The seven industries reporting a decrease in employment in May included textile mills and furniture and related products.

The delivery performance of suppliers to manufacturing organizations was slower in May, as the Supplier Deliveries Index fell 1.5 percent to 65.7 percent. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent translates to slower deliveries.

“Improvement in the index will be constrained at least in the short term due to continuing labor issues and the expected impact of recent China lockdowns,” Fiore said.

Of 18 manufacturing industries, 15 reported slower supplier deliveries in May, led by apparel, leather and allied products and including textile mills and furniture and related products.

The Inventories Index hit 55.9 percent in May, 4.3 percent higher than April. An Inventories Index greater than 44.4 percent is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories.

Apparel, leather and allied products again topped the industries reporting higher inventories in May, which also included textile mills.

ISM’s Customers’ Inventories Index registered 32.7 percent in May, 4.4 percent lower than April.

“Customers’ inventories are too low for the 68th consecutive month, a positive for future production growth,” Fiore said. ‘For 22 straight months, the Customers’ Inventories Index has been at historically low levels.”

Only apparel, leather and allied products reported customers’ inventories as too high in May. The 14 industries reporting customers’ inventories as too low during May were led by textile mills and included furniture and related products.

The ISM Prices Index fell 2.4 percent to 82.2 percent in the month, indicating raw materials prices increased for the 24th consecutive month but at a slower rate in May. The Prices Index has exceeded 70 percent in 17 out of the last 18 months and been above 60 percent for 21 straight months. A Prices Index above 52.6 percent usually coincides with an increase in the BLS Producer Price Index for Intermediate Materials.

In May, 17 of 18 industries reported paying increased prices for raw materials, led by apparel, leather and allied products, and including textile mills and furniture and related products.

ISM’s Backlog of Orders Index registered 58.7 percent in May, a 2.7 percent increase compared to April, indicating order backlogs expanded for the 23rd straight month.

Ten industries reported growth in order backlogs in May, topped by textile mills, while apparel, leather and allied products, and furniture and related products were among the six industries reporting no change in order backlogs in May.

ISM’s New Export Orders Index hit 52.9 percent in May, up 0.2 percent from April.

“For the third straight month, Covid-19 in China has suppressed customer demand from overseas and the war in Ukraine has limited European demand,” Fiore said.

Seven industries reported growth in new export orders in May, led by apparel, leather and allied products, while textile mills, and furniture and related products were among six industries reporting no change in exports in the month.

ISM’s Imports Index fell 2.7 percent in May to 48.7 percent, the lowest reading since May 2020. Fiore said import demand remains strong, “but we are beginning to see the impact of port closures in China, which will lead to additional supply chain disruptions.”

Apparel, leather and allied products, textile mills, and furniture and related products were among seven industries reporting no change in imports in May.

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