Manufacturing's unusual decline in May pulled the national activity index, at minus 0.15, into the negative column for the first time since January this year. The 3-month average is still in the plus column though the level, at 0.18, is also the lowest since January.
Yet the results look skewed. Production indicators pulled the index down 0.29 points which ultimately reflects a sharp downturn in factory hours during the month, but this decline is tied to a fire at an auto supplier that disrupted the supply chain in the auto sector. Other factory indicators were mostly positive including yet another month of standout strength for ISM new orders.
Employment indicators contributed 0.13 to May's index, up slightly from 0.12 in April and a reminder of the economy's fundamental strength. Despite employment, consumer & housing indicators remain slightly in the negative column, at minus 0.04 in May vs minus 0.03 in April. A decline in housing permits was a negative for May. The index's fourth component -- sales, orders, inventories -- made a contribution of 0.05 to May, up from no contribution (zero) in April.
After slowing at the outset of the year, the national activity index is back at its expansion best, posting 0.34 in April and 0.32 in March to indicate well above average growth. Though employment will give a boost to May, weakness in industrial production may hold the index back. Consensus for May is a further gain to 0.37.