PNC Financial Services reported last week the ISM manufacturing index rose to 55.4 percent in May, up from 54.9 percent in April. (The Institute of Supply Management initially reported a decline in the index before correcting it.) A reading of above 50 means that manufacturing is expanding. There were increases in the new orders and production components, while the employment and supplier delivery components fell; all four major components were above 50 in May. Seventeen of the 18 manufacturing industries covered reported expansion in May, with one flat. The strongest growth was in furniture and related products; electrical equipment, appliances and components; and primary metals.
Results of the sub-indices not used to calculate the overall index were mixed. Especially notable was a 3.5 point increase in the prices index to 60, indicating that input prices are rising for manufacturers, a sign of higher demand.
Orders for manufactured goods rose 0.7 percent in April, against expectations for a decline. This was the third consecutive increase in orders. Defense goods led the increase, with new orders of non-defense goods down 0.1 percent. Orders of core capital goods (non-defense capital goods excluding aircraft) fell 1.2 percent in April, but that followed a 4.7 percent increase in March.
Shipments of manufactured goods rose 0.3 percent in April, also the third consecutive increase. Shipments of nondurable goods rose 0.7 percent, while those of durable goods fell 0.1 percent. Shipments of core capital goods dropped 0.4 percent in April, but were up 2.2 percent in March.
Although manufacturing activity has been choppy in 2014 because of the tough winter, the trend has been positive for both orders and shipments. Transportation goods have been leading the improvement, and business investment is picking up in the second quarter after a decline in the first. Manufacturing will expand at roughly the same rate as the overall economy through the rest of this year, thanks to continued gains in consumer spending, a bounce back in business investment, and stronger demand from overseas with recovery in Europe.