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Manufacturing up on strong employment

Gaining strength for a 12th straight month, the American manufacturing economy grew at a faster pace in May, and the Purchasing Managers' Index ticked up 0.4 percent, to a current reading of 62.8.

Propping up the index was the sharply improving employment picture, which offset modest slowing in new orders and production, according to the Institute for Supply Management, a national trade association of purchasing managers which canvasses executives at more than 400 industrial companies each month.

"The manufacturing sector grew at a faster rate in May, continuing its recent strong performance," commented Norbert Ore, chairman of the ISM's Business Survey Committee. "The rate of growth in new orders and production slowed slightly, but was offset by a significant increase in employment," which was up 4.1 percentage points, to a reading of 61.9 percent, up from 57.8 percent in April, said Ore.

Acting as a drag was a modest slowdown in the rate of growth for both production and new orders. The New Orders Index slipped 2.2 percent, to 62.8 percent after climbing to 65 percent the prior month. Production dipped a corresponding 2.2 percent to 64.8 percent, down from 67 percent the preceding month.

Comments from the nation's purchasing managers, said Ore, "indicate demand is strong in most industries, but they also express major concerns about rising materials prices and the cost of energy, in particular. A number of respondents mention adding permanent jobs, as well as adding temporary and seasonal workers. While there are mentions of allocation, extended lead times and low inventories, it appears that members are able to work through these issues at this time."

Manufacturers continue to fret about the price of raw materials, and especially now about the cost of gas and petroleum-based products. The ISM's Prices Index indicates manufacturers continued to pay higher prices in May, the 27th consecutive month of higher prices. But the index receded slightly in May to a level of 86 from April's 88.

May snapshot
Manufacturing benchmarks
Month-over-month percentage-point change

Purchasing Managers' Index +0.4%
New Orders -2.2
Production -2.2
Employment +4.1
Inventories +4.5
Customers' Inventories -3.5
Prices Manufacturers Pay -2.0
Order Backlogs -2.5
Export Orders -0.4
Imports +1.3
Source: Institute for Supply Management

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