May 2018 Institute for Supply Management
Submitted by Atlas Indicators Investment Advisors on June 14th, 2018
Economic output continued humming along in May 2018 according to the Institute for Supply Management. Both of their measures of output (one for manufacturing and one for services) accelerated versus April. Manufacturing’s reading moved up to 58.7 from an already strong 57.3. Likewise, the nonmanufacturing count reached 58.6 versus 56.8 a month earlier. All signals in these reports suggest America’s economy is healthy.
Manufacturing’s reading is actually starting to show signs of difficulties keeping up with demand. For instance, new orders are screaming with a tally of 63.7, jumping 2.5 points in May. Additionally, the portion reporting on delivery delays is on the rise, growing to 62.0, and purchasing managers worry inventories of finished products are too low. Input prices are also on the rise with a reading of 79.5; combined with delivery delays and inventory concerns, this could potentially set our economy up for accelerating inflation data in the months ahead.
Non-manufacturing has many strong points as well. Business activity rose 2.2 percentage points, boding well for second-quarter gross domestic product (GDP). Slower delivery times boosted the nonmanufacturing reading also. Similarly, backlogs grew, caused by 28 percent of firms experiencing more of them, just 7 percent encountering fewer, and 65 percent were unchanged.
These indicators have been showing strength for quite a while. Now they exhibit signs of acceleration. This current economic expansion displays no signs of ending. However, there are signs of stress in the system. Backlogs, inventories, and even employee availability within certain industries are strained. Something will need to adjust in order to accommodate these developments; inflation could be the adaptation in the near-term. Perhaps this is why it is rumored that the Federal Reserve wants “live meetings” (meaning they can make changes and meet with the press) each time monetary policy makers gather. They may make a related announcement during today’s event, so Atlas will keep an eye on the headlines later this morning.
