Milwaukee-area manufacturing decline slowed in May

The Marquette-ISM Report on Manufacturing for May showed improvement on a number of measures but the report’s main index continued to suggest a contracting industry.

The Milwaukee-area PMI increased from 35.73 in April to 43.72 in May. The index was at 47.86 in March. Any reading below 50 suggests the region’s manufacturing sector is contracting while those above that threshold suggest growth.

While many manufacturers were able to continue production during Gov. Tony Evers’ “Safer at Home” order, others were forced by the order to shut down. Depending on industry, many of those that did stay open saw a drop in business. The new order component of the ISM report dropped to 25.88 in April and improved to just 29.11 in May.

Order backlogs continued to fall in May, dropping from 34.38 to 28.57 and inventories grew from 33.33 to 50. Some companies have begun producing inventory stock instead of making products on a per order basis prior to COVID-19, one respondent noted.

Other respondents said their companies are using the slowdown in business for research and development projects.

“R&D projects show promise and there may be a chance to begin recovery,” one respondent said.

The six-month outlook on business conditions showed improvement in May with the diffusion index, which balances positive and negative bias, improving from 38.24% to 57.14%. The shift was driven by a drop in the percentage of respondents expecting things to get worse from 47.06% to 21.43%.

The number expecting things to improve jumped from 23.53% to 35.71% while the percentage expecting things to stay the same went from 29.41% to 42.86%.

Wisconsin’s manufacturing sector was hit hard by the coronavirus pandemic, including the loss of 40,800 jobs in April and the lowest average weekly hours for production workers since April 2009. In metro Milwaukee alone, around 7,800 manufacturing jobs were lost, according to U.S. Bureau of Labor Statistics data.

As bad as many of the metrics have been for manufacturing, a Chicago Federal Reserve index that measures the state against the country as a whole provides some good news. Wisconsin’s manufacturing and construction sectors both made positive contributions to the relative Midwest Economy Index. Essentially, given the performance of the national economy, the sectors performed better than would be expected, albeit barely.

On the other hand, the Chicago Fed’s standard MEI, which compares economic growth to historical averages in standard deviations, came in at -0.19 for manufacturing and -1.56 for all of Wisconsin. The worst reading for manufacturing in the history of the index, which dates back to the 1970s, came in June 1980 at -0.45. April’s reading was the worst for all sectors, nearly doubling the previous low of -0.88 in March 2009.

Get more news and insight in the May 25 issue of BizTimes Milwaukee. Subscribe to get updates in your inbox here.

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.

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