Highlights
Chicago purchasers reported a sharp acceleration in business conditions during May, as the main index rose to 61.5 vs. 57.2 in April. New orders rose sharply to 69.6 vs. April's 60.8 while backlog orders really piled up, to 56.0 vs. 44.8. High order levels point to rising shipments and supply chain strains in the coming months.

But the production index for May showed slowing growth, at 58.5 vs. 66.6, likely a reflection of a less robust new order pace over the prior three months that averaged just over 59. Production may have slowed but more purchasers added employees during May, with the employment index popping up to 52.8 vs. 47.2. Remember, readings over 50 indicate that a greater share of respondents are reporting some level of expansion than contraction, though the absolute level of change is not measured.

Prices paid continued to show strains at a reading of 76.9 vs. 77.2 in April and 70-plus through the year so far. Raw material costs, due largely to high energy costs, continue to rise month-to-month. But these cost increases have yet to be reflected to a significant degree in final prices for goods and services.

Supplier deliveries slowed sharply in the month to 58.1 from 52.7. The high order levels suggest continued slowing in the months ahead. Inventories rose but at a slightly slower rate at 53.0 from 53.7. Given the high order levels, rising inventories are likely intentional as purchasers bulk up on goods in expectation of strong production ahead.

Chicago data, based on a relatively small sample, are often volatile month to month. Still, the May survey points to strong readings for both the ISM manufacturing and non-manufacturing surveys in the sessions ahead. Bonds edged lower and the dollar edged higher in initial reaction to the results.

2006 Release Schedule

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