China's May factory activity cools as weak demand curbs output

Andrew Cummings
June 2, 2020

Manufacturing output in the USA contracted at a slightly softer but still severe rate in May as the Covid-19 pandemic led to lower demand and new order inflows from both domestic and foreign customers, a survey of the manufacturing sector said.

The ISM's forward-looking new orders sub-index rose to a reading of 31.8 in May from 27.1 in April, which was the lowest since December 2008.

It was the second-lowest recorded since the series begin in July 2012, said IHS Markit.

The official manufacturing Purchasing Manager's Index (PMI) eased to 50.6 in May from 50.8 in April, National Bureau of Statistics data showed on Sunday, but held above the 50-point mark that separates expansion from contraction on a monthly basis.

A reading below 50.0 on any of the indices denotes contraction and at a quickening pace as they fall further below it.

Manufacturing conditions in countries across the region all rebounded in May from the record lows recorded in April, but still remained below 50.

The manufacturing PMI - derived from indicators for new orders, output, employment, suppliers' delivery times and stocks of purchases - is a composite single-figure indicator of manufacturing performance. Weaker demand in the market led to a slow output after April's complete lockdown and consequently, firms cut staff numbers at the quickest pace since data collection began over 15 years ago, said the IHS Markit report released today.

The industry is also being supported by near record low interest rates.

"Today's report on the manufacturing sector represents good news that hints the economy is turning the corner as the states reopened in May", said Chris Rupkey, chief economist at MUFG in NY.

"The further reduction in May highlights the challenges that businesses might face in the recovery from this crisis with demand remaining subdued while the longevity of the pandemic remains uncertain", said IHS Markit Economist Eliot Kerr. The inventories index rose 0.7 percentage points to 50.4%, the prices index increased 5.5 percentage points to 40.8%, the new export orders index rose 4.2 percentage points to 39.5% and the imports index fell 1.4 percentage points to 41.3%. "As the economy eases itself out of the lockdown in June, manufacturing will likely recover with a lag since retail units would prefer to run down inventory until there is firmer sense on steady state demand", he added. "And things are likely to continue improving very gradually over the coming months as external demand recovers", the think tank's economist Alex Holmes said.

"Concurrently, the 12-month outlook for output remained weak, with the level of positive sentiment only slightly above April's all-time low".

Production was at 33.2 percent and employment at 32.1 percent, both slight improvements from April. Meanwhile construction activity has grown to 60.8 in May from 59.7 the previous month and new orders are continuing to rise.

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