May 2015 Supply Manager’s Report

Domestic output continued to increase in May 2015 according to the Institute for Supply Management (ISM).  Manufacturing production accelerated for the first time since October 2014.  Nonmanufacturing decelerated in the period but remains well above the 50.0 mark, a level which would indicate stagnation.

Manufacturing’s reading improved to 52.8 from 51.5 in April.  New orders were a highlight in the report; this forward looking component accelerated, increasing 2.3 points to 55.8.  In the months and quarters ahead, this faster pace of orders should transition into faster output.  With relatively weaker trading partners and a strengthening dollar, it is no surprise that exports were unchanged in the period.

Nonmanufacturing was strong even though it decelerated in the period.  The composite figure slowed to 55.7 from 57.8 a month earlier.  Three out of its four components decelerated while the other remained unchanged.  Business activity moved to 59.5 from 61.6; this is still a respectable reading and bodes well for second quarter GDP.  Although it fell some, employment remained relatively strong and corroborates May’s healthy employment report.  New orders, a leading indicator, slowed and could portend a similar outcome to production in future quarters.  Delivery times were faster, suggesting companies are not having as difficult a time keeping up with orders.

Both sides of the economy continue to grow.  America’s expansion pushes on, and this iteration of the ISM data does not imply growth is nearing a turning point.  However, there is not sufficient evidence to suggest the pace of expansion is picking up velocity.  For now, we will all have to settle for an economy behaving like the cruise control is on, and the driver’s foot is off the accelerator.        (by C. Cox)