U.S. manufacturing hit a wall in May, contracting to its lowest output levels in four years. The manufacturing slowdown caught analysts by surprise.
The Institute for Supply Management (ISM) manufacturing index dropped from 50.7 in April to 49 in May. Anything below 50 indicates a contraction in manufacturing. The May drop is the lowest level since June 2009 when the index hit 45.8.
“There’s nothing here that indicates a recession, just that things are going to be perhaps a little bit softer,” Chief Raymond James economist Scott Brown told Reuters.
“The key question, particularly for the Fed, is what does the data imply for the future?” said Brown. “Are things going to be strong enough that they’re going to pick up in the second half? That expectation is still there but it’s probably on shaky footing.”
ISM Manufacturing Business Survey Committee chairman Bradley J. Holcomb says the May figures are not “anything more than a blip on the screen” and that he still expects “a good second half of the year.”
But Wilmer Stith, co-manager of the $300 million Wilmington Broad Market Bond Fund, told the Wall Street Journal that the unexpected hit to manufacturing is somewhat troubling.
“Manufacturing has been one of the stalwarts of U.S. growth post the Great Recession,” said Stith. “So the fact that the leg of the stool has contracted isn’t necessarily a good thing.”