PMI Contracts, but Supply Chain Rebounding

The latest data from the Institute for Supply Management (ISM) indicates that the US manufacturing industry has contracted for the seventh consecutive month in May. The PMI declined by 0.2% to 46.9%, indicating that manufacturing activity has contracted for the month. The PMI has been below the 50% threshold that separates expansion from contraction since October 2022.

The decline in the PMI was driven by a drop in the new orders index, which fell by 3.1% to 42.6% in May. This suggests a decline in future demand for manufacturing products. Meanwhile, the backlog index dropped 5.6% to 37.5%, which is the lowest reading since the Great Recession. The combination of declining new orders and backlog indices does not bode well for future demand in the sector.

 

Despite the pessimism among supply chain executives, some believe that the manufacturing economy is positioned for a soft landing. Tim Fiore, chair of the ISM's manufacturing business survey committee, believes that the manufacturing economy is strong enough to weather any future uncertainties. The employment index increased by 1.2% to 51.4%, indicating that manufacturers are not letting people go despite the uncertainties in the market.

 

The tech manufacturing industry also contracted in May, but the supply chain remains optimistic for a rebound in demand. The IPC trade association has pointed to a build-up of inventory at OEM and EMS customers as a reason for the decline in demand. Customers are holding onto this inventory in fear of future shortages, which has resulted in a decline in new orders. However, the supply chain is poised for growth as soon as new orders pick up.

 

Although there are still uncertainties in the market, the supply chain is optimistic about future growth. Material flow has improved, and lead times have declined, which means that the supply chain is ready for a rebound in demand. However, the uncertainty surrounding future demand and price instability remains a concern. The manufacturing industry will need to remain vigilant and adapt to the changing market conditions to ensure continued growth in the future.