Factory Activity Suggests U.S. Economy Returned to Expansion in May

Workers assemble cars at the newly renovated Ford's Assembly Plant in Chicago, June 24, 2019. - The plant was revamped to build the Ford Explorer, Police Interceptor Utility and Lincoln Aviator. (Photo by JIM YOUNG / AFP) (Photo credit should read JIM YOUNG/AFP via Getty Images)
IM YOUNG/AFP via Getty Images

The decline of activity and loss of jobs in U.S. factories slowed in May, indicating that the broader U.S. economy returned to growth after a sharp contraction in April.

Factory activity itself continued to contract in May, according to the Institute of Supply Management’s survey of manufacturers. But the pace of the contraction eased in May, lifting the ISM manufacturing index to 43.1 from an 11-year low of 41.5 in April.

While scores under 50 indicate contraction in the manufacturing sector, the rebound suggests that the overall economy expanded in May, the ISM said in a statement.

The ISM’s gauges of production, new orders, and employment all remained well below the 50 level but were sharply higher than their month ago readings. New orders for exports were up sharply as well, while imports were down.

Comments from manufacturers highlight the chaotic nature of the pandemic’s impact on the economy while also pointing to a rebound.

“Business activity remains strong for consumable applications and very weak in durable segments,” a manufacturer in the plastics and rubber industry said.

“Fuel sales demand are beginning to rebound in May as stay-at-home orders are lifted across the country,” a petroleum industry executive said.

“Increased COVID-19 sales in the food business has really stressed our production capabilities,” a food industry executive said.

From the computers and electronics industry: “Despite the COVID-19 issues, we are seeing an increase of quoting activity. This has not turned into orders yet, but it is a positive sign.”

Around the world, manufacturing surveys indicate that contractions continue or even deepen. Germany’s Purchasing Managers Index from IHS Markit, a data firm that conducts surveys around the world, improved slightly but remains in contraction territ0ry. Japan’s IHS Markit PMI worsed. China alone rose into expansion territory, surprising economists who expected the index to remain in contraction.

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