U.S. Manufacturing Quickens While Prices Keep Spiraling UpBy
U.S. manufacturing expanded at a faster pace in May and order backlogs grew by the most in 14 years, even as price gains for materials continued to accelerate, the Institute for Supply Management said Friday.
Highlights of ISM Manufacturing (May)
- Factory index rose to 58.7 (est. 58.2) from 57.3; readings above 50 indicate expansion
- Measure of new orders improved to 63.7 from 61.2
- Order backlogs index increased to 63.5, highest since April 2004, from 62
- Employment gauge increased to 56.3, the first gain in three months, from 54.2 reading
Firmer U.S. consumer spending and solid business investment are driving orders and output, consistent with steady improvement for the nation’s manufacturers even as their overseas counterparts contend with moderating economies. Sixteen out of 18 manufacturing industries reported growth last month, including machinery, chemical products, petroleum and coal products, and transportation equipment. No industry saw a decrease in May.
Production picked up with orders, while the increase in unfilled orders prompted factories to step up hiring. The Labor Department’s monthly figures earlier Friday showed manufacturers added 18,000 jobs in May, slightly above the average for the past two years. American households and companies are spending steadily, helped in part by lower taxes.
Meanwhile, a gauge of input prices advanced for a sixth straight month, reaching the highest level since April 2011. Tariffs on steel and aluminum are driving up costs and are set to continue disrupting supply chains and prices, a primary concern among U.S. firms. The survey was conducted before the White House on May 31 announced it would impose import tariffs on steel and aluminum from Mexico, Canada and the European Union.
The decision is likely to increase the threat of supply disruptions and higher prices, according to Timothy Fiore, chairman of the factory survey for the Tempe, Arizona-based ISM.
“This has been top of mind for the supply community over the last three months, and what’s come out the last couple days, it’s clearly re-entered the picture,” Fiore said on a conference call. “The common belief among the community was that every company would lift prices for the end consumer. The third quarter will demonstrate whether they’d be able to do that.”
- ISM production measure rose to a three-month high of 61.5 in May from 57.2
- Gauge of prices paid edged up to 79.5 from 79.3
- Measure of export orders fell to 55.6, the lowest since October, from 57.7
- Gauge of supplier deliveries climbed to 62, the second-highest since March 2010, from 61.1; readings above 50 indicate longer delivery times
- Index of customer inventories fell to 39.6 in May, the lowest since December 2010, from 44.3; readings below 50 indicate stockpiles are being depleted
— With assistance by Alexandre Tanzi