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Today the Institute for Supply Management published its May Manufacturing Report. The latest headline PMI at 49.0 percent is the first month of contraction following five months of modest expansion and only the fourth month of contraction since the end of the Great Recession. In fact, that one month of contraction last November at 49.9 was the direct result of Superstorm Sandy. Today's number is the lowest since June 2009. The Briefing.com consensus was for 50.7 percent.

Here is the key analysis from the report:

Manufacturing contracted in May as the PMI™ registered 49 percent, a decrease of 1.7 percentage points when compared to April's reading of 50.7 percent. This month's reading reflects the second month of contraction in the manufacturing sector since July 2009, when the index registered 49.9 percent. It is also the lowest reading for the PMI™ since June 2009, when the index registered 45.8 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI™ in excess of 42.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the May PMI™ indicates growth for the 48th consecutive month in the overall economy, and indicates contraction in the manufacturing sector for the first time since November 2012. Holcomb stated, "The past relationship between the PMI™ and the overall economy indicates that the average PMI™ for January through May (51.7 percent) corresponds to a 3 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI™ for May (49 percent) is annualized, it corresponds to a 2.1 percent increase in real GDP annually."

Here is the table of PMI components. I've highighted the ones that are contracting. Note that employment is still above 50 for this diffusion index but was slowing in May.

(click to enlarge)

I'm reluctant to put too much focus on this index for various reasons, but they are essentially captured in Briefing.com's Big Picture comment on this economic indicator.

This [the ISM Manufacturing Index] is a highly overrated index. It is merely a survey of purchasing managers. It is a diffusion index, which means that it reflects the number of people saying conditions are better compared to the number saying conditions are worse. It does not weight for size of the firm, or for the degree of better/worse. It can therefore underestimate conditions if there is a great deal of strength in a few firms. The data have thus not been either a good forecasting tool or a good read on current conditions during this business cycle. It must be recognized that the index is not hard data of any kind, but simply a survey that provides broad indications of trends.

The chart below shows the Manufacturing Composite series, which stretches back to 1948. I've highlighted the eleven recessions during this time frame and highlighted the index value the month before the recession starts.

For a diffusion index, the latest reading of 50.7 indicates weak expansion. What sort of correlation does that have with the months before the start of recessions? Here are the eleven data points for the months before recessions arranged in numeric order with the latest data pointed inserted in the sequence (highlighted in red).

42.1, 44.8, 45.7, 47.2, 47.8, 48.5, 49.0, 49.2, 50.5, 50.7, 53.2, 66.2

Today's reading is right in the middle of the pack, with six lower and five higher.

But how revealing is today's 1.7 point change from last month? There are 785 monthly data points in this series. The average month-to-month point change is 2.01 points. So today's headline PMI number is 15% below the mean change.

To reiterate the Briefing.com assessment: "The data have thus not been either a good forecasting tool or a good read on current conditions during this business cycle." The ISM reports nevertheless offer an interesting sidebar to the ongoing economic debate.

Note: I use the FRED USRECP series (Peak through the Period preceding the Trough) to highlight the recessions in the charts above. For example, the NBER dates the last cycle peak as December 2007, the trough as June 2009 and the duration as 18 months. The USRECP series thus flags December 2007 as the start of the recession and May 2009 as the last month of the recession, giving us the 18-month duration. The dot for the last recession in the charts above are thus for November 2007. the "Peak through the Period preceding the Trough" series is the one FRED uses in its monthly charts, as illustrated here.

Source: ISM Manufacturing Index Contracts, Worst Level Since June 2009