Highlights

The ISM Manufacturing Index fell to 49.0 in May from 50.7 in April. That was the first contraction in the ISM Index since November 2012 and the lowest reading since June 2009. The Briefing.com consensus expected the index to increase modestly to 50.9.

Key Factors

The drop in the ISM Index should not have been that surprising. Most of the regional manufacturing surveys have cooled considerably over the past few months, and surveys from New York and Philadelphia both dipped into contractions in May. Only the Chicago region, whose PMI surged to 58.7 in May from 49.0 in April, showed sizable business activity growth in May.
The production index fell to 48.6 from 53.5 in April. Trends suggest another decline is likely in June. Orders, both new and unfilled, ended expansions and contracted in May. The New Orders Index fell to 48.8 from 52.3 while the Backlog of
Orders Index dropped to 48.0 from 53.0.
The Employment Index held up and remained in an expansion. The index only fell 0.1 points, from 50.2 in April to 50.1 in May.

This is a highly overrated index. It is merely a survey of purchasing managers. It is a diffusion index, which means that it reflects the number of people saying conditions are better compared to the number saying conditions are worse. It does not weight for size of the firm, or for the degree of better/worse. It can therefore underestimate conditions if there is a great deal of strength in a few firms. The data have thus not been either a good forecasting tool or a good read on current conditions during this business cycle. It must be recognized that the index is not hard data of any kind, but simply a survey that provides broad indications of trends.

Category	MAY	APR	MAR	FEB	JAN
Total Index	49.0	50.7	51.3	54.2	53.1
Orders	48.8	52.3	51.4	57.8	53.3
Production	48.6	53.5	52.2	57.6	53.6
Employment	50.1	50.2	54.2	52.6	54.0
Deliveries	48.7	50.9	49.4	51.4	53.6
Inventories	49.0	46.5	49.5	51.5	51.0
Export Orders	51.0	54.0	56.0	53.5	50.5
Prices paid (not seas adj)	49.5	50.0	54.5	61.5	56.5