ISM Manufacturing: Still in Expansion, But a Serious Drop (UPDATE: ADP Private Payrolls Increase Only 38K)

The news from the Institute for Supply Management (ISM) is not good:

The PMI registered 53.5 percent and indicates expansion in the manufacturing sector for the 22nd consecutive month. This month's index, however, registered 6.9 percentage points below the April reading of 60.4 percent, and is the first reading below 60 percent for 2011, as well as the lowest PMI reported for the past 12 months. Slower growth in new orders and production are the primary contributors to this month's lower PMI reading.

Okay, it's still in expansion (any reading above 50% means expansion). But we have to remember that manufacturing is only about 15% of the economy. In April the Non Manufacturing Index (NMI) took a 4.5-point dive, moving from 57.3% to 52.8%. If the Manufacturing Index is a precursor to another NMI drop, we're going to be looking at 85% of the economy seen as in contraction by those who are on the front lines. Yikes.

The Associated Press says that “the decline was the biggest since 1984.” Good research: That decline in January of that year was from an on-fire 69.9% to still white-hot 60.0%.

Zero Hedge says that the expected reading was 57.1%. Ouch.

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UPDATE: The ADP Employment Report came in at a tepid +38,000.

Further, from the detail (PDF):

May's ADP Report estimates employment in the service-providing sector rose by 48,000, marking 17 consecutive months of employment gains while employment in the goods-producing sector fell 10,000 following six months of increases. Manufacturing employment fell 9,000 in May following seven consecutive monthly gains.

Employment among large businesses, defined as those with 500 or more workers, decreased by 19,000, while employment among medium-size businesses, defined as those with between 50 and 499 workers, increased by 30,000. Employment for small businesses, defined as those with fewer than 50 workers, rose 27,000 in May.*

Two years after the end of the recession, we still have large companies on a net basis letting people go? Meanwhile, small-business job growth, which is supposed to the engine of employment resurgences, is mediocre.

Zero Hedge says that expectations were for +175,000. Blindfolded kids throwing darts just leaving a tilt-a-whirl ride could have done better than that.