Updates - Inflation

US REACT: Goods Disinflation Showing Signs of Returning

Eliza Winger
June 1, 2023

OUR TAKE: The ISM manufacturing gauge declined further in May, its seventh straight month in contractionary territory. With consumers shifting their purchases toward services rather than goods, it’s hard to foresee a return to positive territory anytime soon. With the May print showing demand easing and prices paid dropping dramatically, it seems the disinflationary impulse from goods may be set to return.

    • The ISM manufacturing gauge fell 0.2 point to 46.9 in May, holding below the 48.7 threshold indicative of an economic contraction.
    • Demand-side indicators have deteriorated, while input strains have generally improved.
    • The new-orders subindex dropped 3.1 points to 42.6. In addition, orders minus inventories — often a harbinger of slowdowns — fell to -3.2 in May, from -0.6 in April.
    • The prices index fell sharply — down 9.0 points to 44.2 — after rising in April. Most respondents to the survey (85%) reported prices were the same or lower in May, up from 4% in April.
    • The employment index ticked up (51.4 vs. 50.2), but sentiment remained mixed. Of the six big manufacturing sectors, only transportation equipment and machinery expanded.
    • The ratio of optimistic to pessimistic comments remained at 1-to-1, pointing to uncertainty and wide differences across industries. Some respondents (such as those in computer & electronic products) indicated business is mixed, while some (chemical products) saw a gain in momentum and others (transportation equipment) saw new orders slowing.