Posted June 6, 2023

Supply executives: New orders and backlogs contracting

Economic activity in the manufacturing sector contracted in May for the seventh consecutive month following a 28-month period of growth, say the nation's supply executives in the latest Manufacturing ISM Report On Business.

The report was issued by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee:

"The May Manufacturing PMI registered 46.9%, 0.2 percentage point lower than the 47.1% recorded in April. Regarding the overall economy, this figure indicates a sixth month of contraction after a 30-month period of expansion.

"The New Orders Index remained in contraction territory at 42.6%, 3.1 percentage points lower than the figure of 45.7% recorded in April.

"The Production Index reading of 51.1% is a 2.2-percentage point increase compared to April's figure of 48.9%.

"The Prices Index registered 44.2%, down 9 percentage points compared to the April figure of 53.2%.

"The Backlog of Orders Index registered 37.5%, 5.6 percentage points lower than the April reading of 43.1%. The Employment Index indicated another month of expansion, registering 51.4%, up 1.2 percentage points from April's reading of 50.2%.

"The Supplier Deliveries Index figure of 43.5% is 1.1 percentage points lower than the 44.6% recorded in April; this is the index's lowest reading since March 2009 (43.2%).

"The Inventories Index dropped 0.5 percentage point to 45.8%; the April reading was 46.3%. The New Export Orders Index reading of 50% is 0.2 percentage point higher than April's figure of 49.8%. The Imports Index remained in contraction territory, registering 47.3%, 2.6 percentage points lower the 49.9% reported in April," he said.

Fiore continued, "The U.S. manufacturing sector shrank again, with the Manufacturing PMI losing a bit of ground compared to the previous month, indicating a faster rate of contraction.

"The May composite index reading reflects companies continuing to man percentage outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period. However, there is clearly more business uncertainty in May.

"Demand eased again, with the (1) New Orders Index contracting at a faster rate, (2) New Export Orders Index slightly improving to 50%, (3) Customers' Inventories Index persisting at the low end of 'too high' territory, a negative for future production and (4) Backlog of Orders Index dropping to a level not seen since the Great Recession. Output/Consumption (measured by the Production and Employment indexes) was positive, with a combined 3.4-percent percentage point upward impact on the Manufacturing PMI® calculation.

"The Employment Index expanded for the second month (and at a faster rate) after two months of contraction, and the Production Index moved back into expansion territory. Regarding employment, panelists' comments continue to indicate near equal levels of activity toward expanding and contracting head counts at their companies, amid mixed sentiment about when significant growth will return. Inputs — defined as supplier deliveries, inventories, prices and imports — continue to accommodate future demand growth.

"The Supplier Deliveries Index indicated faster deliveries, and the Inventories Index dropped further into contraction as panelists' companies man percentage inventories exposure. The Prices Index fell back into 'decreasing' territory (and in dramatic fashion) after one month of increasing prices. Manufacturing lead times clearly improved in the month.

"Of the six biggest manufacturing industries, only one — Transportation Equipment — registered growth in May.

"New order rates contracted further, as panelists remain concerned about when manufacturing growth will resume. Panelists' comments again registered a 1-to-1 ratio regarding optimism for future growth and continuing near-term demand declines. Supply chains are prepared and e percentager for growth, as panelists' comments and the data support reduced lead times for their companies' more important purchases.

"Price instability remains and future demand is uncertain as companies continue to work down overdue deliveries and backlogs. Seventy-six percent of manufacturing gross domestic product (GDP) is contracting, up from 73% in April. A larger number of industries contracted strongly, as the proportion of manufacturing GDP registering a composite PMI® calculation at or below 45% — a good barometer of overall manufacturing weakness — increasing to 31% in May, compared to 12% in April. May performance was clearly weaker compared to April," said Fiore.

The four manufacturing industries that reported growth in May are: Nonmetallic Mineral Products; Furniture & Related Products; Transportation Equipment; and Fabricated Metal Products. The 14 industries reporting contraction in May, in the following order, are: Wood Products; Primary Metals; Apparel, Leather & Allied Products; Textile Mills; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Food, Bever percentage & Tobacco Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Miscellaneous Manufacturing; and Machinery.


"Overall impact for our business is mixed. Our scientific instrumentation business continues to be weakened by lending to support capital purchasing, while services and consumables stay on track and continue to increase in some markets. Hiring has slowed in response to continued global uncertainty on inflation and unrest in Europe." [Computer & Electronic Products]

"Demand continues to gain momentum due to new business pipelines finally yielding billable production. Personal care and home care are drivers." [Chemical Products]

"We continue to have a strong backlog for our customer orders; however, new orders are slowing. Our supplier on-time delivery continues to be a challenge for us, and we still face price increases on a weekly basis. Labor short percentages are getting better within our organization and throughout our supply chain." [Transportation Equipment]

"Pricing seems to be becoming the primary focus of supply and sourcing teams, as customers and consumers are beginning to push back. While inflation is easing on some discretionary goods, high food costs persist across most categories." [Food, Bever percentage & Tobacco Products]

"Business is returning to pre-pandemic levels. There is increased demand in commercial/government markets and reduced demand in residential/consumer markets." [Machinery]

"Less volatility in customer demand from one month to six months out; seeing signs of slowing in the second half of 2023 and potentially into early 2024. Logistics, particularly from East Asia, continue to return to historical-level transit times; Europe and India remain elevated. Supply short percentages are limited to select items only. Suppliers are still seeking price increases but are too late to be asking now." [Fabricated Metal Products]

"Although sales are slightly lower, they are holding at current rate — soft, not catastrophic." [Furniture & Related Products]

"Moderate increase in customer orders/demand, supplier deliveries improving, and raw material prices stable to soft." [Plastics & Rubber Products]

"Business conditions are good, demand remains strong, and we are continuing to ramp up production to keep up." [Miscellaneous Manufacturing]

"Industrial and high-tech demands are pushing out, as a slowdown is clear. This is stunting growth and currently making 2023 demand look flat to only slightly up, compared to original projections of 10-percent growth." [Electrical Equipment, Appliances & Components]