Purchasers’ Index Drops Sharply in May
The U.S. economy cooled slightly in May for the first time since July, 1986, in a further indication that inflation could be easing, the nation’s purchasing managers said in their monthly report.
Production by the nation’s factories continued to grow, although at a significantly slower pace than in April, according to the report issued Friday by the National Assn. of Purchasing Management.
“The total economy resumed its ratcheting path toward slower growth during May as the manufacturing economy reported the first decline in growth in almost three years,” said Robert J. Bretz, chairman of the trade group, which is based in Tempe, Ariz.
“Once again, expanding exports and increased capital expenditures are providing the real growth,” he said. “Virtually all indicators confirmed the slowing of the economy and, perhaps most importantly, the sharp slowing of inflation growth along with it.”
The group’s purchasing managers’ index declined to 49.7% in May, down sharply from 53% in April, the group said. It was the first time in 33 months that the indicator had dropped below 50% and indicated that the economy was slowing further, the group stated.
Price Index Drops
A reading above 50 indicates that the economy is generally expanding; below 50, that the economy is generally declining.
“The PMI has averaged 51.9% for the first five months of 1989,” Bretz said. “Past experience indicates that if this average were to continue for the balance of the year it would be consistent with real GNP growth of about 2.5%, or roughly the same as in the first quarter. The PMI would have to fall below 44% before signaling negative real GNP.”
The group’s price index plunged to 57.6% in May from 66.5% in April, the lowest since December, 1986. Prices of only 11 items in the group’s survey rose last month, the fewest since February 1987.
New orders continued to expand in May but also at a reduced rate, the group said. Once again, inventory buying did not supply the growth in production; inventories decreased sharply in May for the fifth consecutive month.
