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Real Time Insight

This morning, the market sifted through a raft of manufacturing data. 

The May 2013 Manufacturing ISM “Report on Business”

This major U.S. manufacturing PMI registered 49.0, a decrease of 1.7 from April's reading of 50.7.  This indicates contraction in manufacturing for the first time since November 2012 and only the second time since July 2009. This month's PMI reading is at its lowest level since June 2009, when it registered 45.8.

  • The New Orders Index decreased in May by 3.5 to 48.8 percent.
  • The Production Index decreased by 4.9 to 48.6 percent.
  • The Employment Index registered 50.1 percent, a slight decrease of 0.1 compared to April's reading of 50.2 percent.
  • The Prices Index registered 49.5 percent, decreasing 0.5 from April, indicating overall raw materials prices decreased from last month.
  • Several comments from the panel indicated a flattening or softening in demand due to a sluggish economy, both domestically and globally.

Domestic Housing and Consumer Industries Grew

Interestingly, of 18 U.S. manufacturing industries listed, 10 actually reported growth in May!

Here are the growing industries kept in order:

Printing & Related Support Activities; Nonmetallic Mineral Products; Fabricated Metal Products; Wood Products; Furniture & Related Products; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Machinery; and Paper Products.

Looking through this list shows U.S. housing and consumer-related  industries are in fact expanding inside overall contracting numbers.

So what gives?

Globally Exposed Industries Contracted

Six U.S. industries reported contraction in May. 

Listed in order, they are:

Miscellaneous Manufacturing; Transportation Equipment; Chemical Products; Plastics & Rubber Products; Computer & Electronic Products; and Primary Metals.

All industries here are heavily exposed to China and Europe slowdowns, particularly the China slowdown.

Two industries saw flat conditions.

Conclusion:  The U.S. Is Still the Place to Be

Markit’s Global PMIs also came out this morning.  These PMIs are useful in the global context, as they are collected across major global regions.

Global PMIs clearly show the U.S. is the place to be in terms of manufacturing fundamentals.

(1) U.S. Manufacturing Grows

The final reading of Markit's U.S. manufacturing purchasing managers index picked up to 52.3 in May from a six-month low of 52.1 in April. Markit said the U.S. PMI was consistent with only a modest rate of growth. The flash, or initial, estimate for May was for a reading of 51.9; the lowest reading since last October.

The May survey paints a picture of expanding U.S. manufacturing business conditions. Output, order books, and employment are all growing modestly.

(2) A strong rise in new orders helped the U.K.'s manufacturing sector grow at its fastest pace in over a year.

The Markit/CIPS Purchasing Managers' Index rose to 51.3 in May from an upwardly revised 50.2 in April, more than a full point higher than the consensus forecast. April's reading was originally below the 50-mark that divides growth from contraction.

(3) The euro zone's shrinking manufacturing sector showed signs of life in May, as the contraction in factory production eased to its slowest level best level in 15 months.

However, the fact that manufacturing in the 17-member monetary union continued weakening extended the downturn to 22 months.

EU’s Markit Manufacturing PMI in May was 48.3 versus 47.8 in April.

Who was the EU member with the biggest improvement in May?  -- Spain. It came in at 48.1, a 24-month high. The decline in Greek manufacturing also slowed to 45.3, a 23-month high. France’s manufacturing PMI was 46.4, a 13-month high.  Italy’s PMI in May was up to 47.3 versus 45.5 in April. At the top of the heap, Germany’s Markit Manufacturing PMI was 49.4 in May.

(4) China's factory activity shrank for the first time in seven months in May.  Both domestic and external demand softened, adding to concerns that the world's second-largest economy is losing momentum.

China’s HSBC/Markit PMI for May slipped to 49.2, the lowest level since October 2012 and down from April's final reading of 50.4.  The figure also was slightly lower than a preliminary reading of 49.6 released on May 23. Fifty divides expansion from contraction.

The downward revision of the final HSBC China Manufacturing PMI suggests a marginal weakening of manufacturing activities towards the end of May, thanks to deteriorating domestic demand conditions.

The reading adds to evidence in recent weeks that China's economy is losing growth momentum, although the Chinese government's official PMI, released on Saturday, ticked up to 50.8 in May from April's 50.6. The official survey focuses on bigger and state-owned firms.

A Question for Debate

Monday’s two manufacturing surveys showed the domestic scene as a place of strength.

The big question I have? 

Can U.S. manufacturing industries stay afloat in this weak global scene?

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