But the ISM Manufacturing PMI for the US shows contraction on declining new orders. The contradicting PMIs of S&P and ISM add to the confusing “soft data.”

By Wolf Richter for WOLF STREET.

The two manufacturing PMIs for the US out today – the ISM Manufacturing PMI and the S&P US Manufacturing PMI – nicely contradicted each other, the first showing solid decline, the second showing solid growth.

S&P also released PMIs for Canada and Mexico today. As you’d expect, its US Manufacturing PMI, which showed “solid overall growth” on a jump in orders, contrasts with the PMIs for Canada and Mexico, both of which showed continued sharp contraction amid sharply dropping new orders.

These Purchasing Managers’ Indices are essentially “soft data,” and “soft data” has been crappy and confusing for months, while “hard data” has been pretty decent.

For the PMIs, a panel of executives of companies across a wide spectrum of industries respond to questions about production, orders, employment, backlog, prices, etc. Today’s PMIs asked about changes in those categories in May from April. So these are month-to-month changes. Executives have three choices in how they can respond: increased (=1), no change (=0), declined (=-1). There are no dollars involved. The total is figured in percent. 50% means no change: an equal number of executives said “increased” and “decreased.” When more executives say “increased” than “decreased,” the value is over 50%, and the index shows “growth.”

The ISM Manufacturing PMI came in at 48.5% (contraction), below 50% for the 3rd month in a row, with new orders contracting for the 4th month in a row, production contracting for the 3rd month in a row, employment contracting for the 4th month in a row, and input prices rising for the 8th month in a row.

But the S&P US Manufacturing PMI today jumped to 52 (“solid overall growth,” it said) for May, powered by a jump in US domestic new orders.

Every month this year, the PMI showed growth, though not spectacular growth. Spectacular growth was in 2021 and 2022, with values topping 63. December was the last month of contraction (below 50):

• May: 52.0 (“solid overall growth”)
• April: 50.2 (slow growth)
• March: 50.2 (slow growth)
• February: 52.7 (fastest growth since June 2022)
• January: 51.2 (growth)
• December: 49.4 (contraction)

New orders jumped on strong US domestic demand, but even international orders rose slightly from April’s drop: Total orders “rose to the strongest degree in three months, demand from within the United States was noted as the primary driver of growth as international sales remained relatively subdued, rising only slightly following April’s steep fall,” the report said.

Outlook improves to a three-month high and was above survey average, on hopes “of a more stable trading environment in a year’s time, with growing expectations among the panel that disruption to markets caused by tariffs will dissipate in the months ahead,” the report said.

Employment rose for the first time in three months, though only marginally, “with some firms noting difficulties in finding suitable workers to fill vacancies.”  Like any business, they’re facing the reality that it’s hard to hire qualified workers.

Production volumes dipped “marginally for a third month in a row.”

Backlogs of work fell again, “albeit modestly.”

Finished goods inventory “rose for the first time since last November.”

Supplier deliveries slowed with delays “at their most acute since October 2022,” “linked to growing stock shortages at vendors.”

Input prices increased, and “raw material price inflation remained high, despite dropping to a three-month low, amid reports that that suppliers were passing on tariff related cost increases.”

Factory gate prices rose “to the greatest degree since November 2022.”

Sentiment of frontrunning: “The common theme was a temporary surge in demand as manufacturers and their customers worry about supply issues and rising prices.”

Canada manufacturing in “steep” contraction.

S&P’s Canada Manufacturing PMI today was 46.1, signaling “steep” contraction, and below 50 for the fourth month in a row, though slightly up from April (45.3), on “ongoing cuts” in production and new orders, as backlog “declined sharply,” the report said.

“International demand remained especially hard hit, with new export business again declining to a steeper degree than overall sales,” the report said. Trade with the US was “weak.”

“Job losses mounted,” with overall employment falling for the fourth month in a row, “and at the steepest pace since June 2020.”

“Confidence in the outlook remained subdued overall. Whilst there are some hopes of an improvement in underlying market conditions and greater macroeconomic stability, worries over trade dominated the outlook.”

Mexico manufacturing sees “solid decline.”

S&P’s Mexico Manufacturing PMI today was 46.7, on both “markedly” shrinking orders and supply challenges, signaling “a further deterioration in the health of Mexico’s manufacturing industry,” and “pointing to a solid decline in business conditions.” But May’s reading was less bad than April’s 50-month low of 44.8.

New orders have been shrinking for 11 months in a row, long before tariffs were an issue. “A substantial drag on sales volumes came from abroad, with new export business decreasing at the second-fastest rate since February 2021. US tariffs were once again widely cited as a drag on demand for Mexican goods, although some panelists reported project delays, generally subdued market conditions, and lower interest from customers in Central America.”

Production fell, and “the contraction was marked,” but less “than April’s 49-month record,” with orders being one issue, but “supply-side constraints were also a hindrance to output.”

Backlogs of work jumped, “with material shortages cited as a reason for increased volumes of outstanding business.”

Employment declined, but “the rate of job shedding was the slowest since January.”

Input prices rose, but at a slower pace than in April, on both “unfavorable exchange rate movements” and “price hikes from vendors and US tariffs.”

“Prices charged rose, albeit only marginally and at a softer pace.”

Business confidence improved modestly, “but growth expectations were historically muted. US tariffs, uncertainty, delayed investment plans and economic fragility reportedly dampened sentiment.”

The S&P manufacturing PMIs can be summed up: Continued trade uncertainty and supply challenges all around, continued and faster growth in the US, on rising domestic new orders, while obviously, this comes at the expense of Mexico and Canada that also face their own problems.

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