Manufacturing in U.S. Unexpectedly Expands at Faster Pace

Manufacturing unexpectedly expanded at a faster pace in May, helped by an increase in orders that signals U.S. factories are rebounding from an early-2016 slump.

The Institute for Supply Management’s index climbed to 51.3 from 50.8 in April, figures from the Tempe, Arizona-based group showed Wednesday. The median forecast in a Bloomberg survey of 81 economists called for 50.3. Readings greater than 50 indicate growth.

Factories are using a pickup in bookings from the U.S. and abroad to help trim stockpiles, laying the ground for bigger gains in production later in the year. The recent pickup in oil prices also will probably help stem the slump among energy producers that has contributed to weak business investment.

“Manufacturing will be on a slow, gradual path of improvement,” Sam Bullard, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said before the report. “Hopefully, we’re in a stabilization process in energy and mining.”

Estimates for the manufacturing index in the Bloomberg survey ranged from 49 to 52, according to the Bloomberg survey of 80 economists.

The new orders gauge was little changed at 55.7 compared with 55.8 in April. A measure of production cooled to 52.6 from 54.2.

Employment Lags

One weak spot was the factory employment measure, which held at 49.2, indicating manufacturers trimmed payrolls last month.

In other signs that the industry is turning around, the index of supplier deliveries jumped to 54.1, the highest level since December 2014, from 49.1. A reading greater than 50 means shipments slowed, which often happens when suppliers have trouble keeping up with demand.

The ISM’s gauge of factory inventories fell to 45 from 45.5. The index has been lower than 50 for almost a year as producers trim the amount of goods on hand.

“Things, for me, are pointing in the right direction,” Bradley Holcomb, chairman of the ISM factory survey, said on a conference call with reporters. With businesses having pared stockpiles and orders picking up, “there’s a bit of an inventory shortage” and “suppliers are now having a harder time catching up so they’re slower.”

The report also showed the headwind from sluggish overseas markets may be dissipating. The index of export orders held at 52.5 in May, marking the third straight month demand from abroad has grown.

Manufacturers also are seeing a pickup in price pressures. The index of prices paid jumped to 63.5, the highest level since June 2011, from the previous month’s 59.

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