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Data released on Monday showed the ISM Manufacturing index of May rose to 43.1, slightly below expectations. Analysts from Wells Fargo, point out that after some of the worst months on record, this is a step in a better direction.

Key Quotes: 

“The fact that the headline print is below 50 indicates that activity is still contracting, but a reading of 43.1 in May versus 41.5 in April tells us that the pace of decline is slowing; things are less bad.”

“The performance of the various sub-components are slightly more encouraging. This is most evident in the case of supplier deliveries. Had it not come down, the headline improvement in May would have been even larger. This component seldom gets much attention, but has become the tail that wags the dog in recent months.”

“Hopefully it will not take that long for manufacturing to regain its footing, but there are certainly challenges ahead. Supply chain disruptions and implementation of new social-distancing protocols in factories and workshops not just in the United States, but around the world, likely mean that the recovery here will take longer than the quicker turnaround we expect to see in consumer spending. Today’s report is not the end, but after some of the worst months on record, it is a welcome step in a better direction.”