Factory Activity Surpasses Economists’ Expectations

Factory activity picked up in May after a two-month slowdown.

The Institute for Supply Management said its manufacturing index rose to 58.7 in May from 57.3 in April. The index in February hit 60.8, its highest level since May 2004.

Numbers above 50 indicate activity is expanding across the manufacturing sector.

The May reading beat economists’ expectations. The report was “primarily driven by the fact that demand continued to stay high,” said Tim Fiore, who oversees the ISM survey.

Renewed worries over tariffs and possible trade disruptions cloud the outlook.

“I don’t think it’s going to affect demand in the short run,” but “we’ll continue to have supplier-delivery issues,” he said. “You’re seeing some of it already.”

Forecasters think broader economic growth has rebounded in the second quarter following a modest slowdown over the winter months.

The report suggested “the weaker March and April numbers said more about either the bad weather and/or fear of trade wars than the underlying state of the manufacturing sector,” said economist Ian Shepherdson.

Factory production rose 0.5 percent in April from the prior month and was up 1.8 percent on the year, according to the Fed.

Many details in the latest report were upbeat. An index that tracks new orders rose to 63.7 in May. The production index was up to 61.5. The employment component picked up to 56.3.

The index tracking prices for raw materials rose in May to 79.5, its highest level in seven years and extending “the strongest sustained run-up in prices since pre-
recession periods,” Fiore said. Tariffs are one factor driving up prices, he said.

Across 18 manufacturing industries tracked by ISM, 16 reported growth in May while two—wood products and apparel, leather and allied products—reported no change.

Source: Wall Street Journal