The ISM index of manufacturing activity rose to 49.4 in May from 45.4 in April on the strength of monthly gains in orders, production and order backlogs, now all just over 50.

The overall index remains under 50 because of the continued reluctance to build inventory and continuing declines in manufacturing employment, according to Jim Haughey, Newport Communications senior economist. "This report is consistent with recent reports of slightly lower factory production and a small decline in factory shipments," Haughey said. "Also, export orders declined slightly to 50.8 with some supply managers in the survey blaming the impact of SARS on domestic demand in China."
The current index is about 4 points below the prewar level but should return to the mid 50's within a few months with the imminent boost from the new tax cut and the impact on export volume from the declining dollar. Haughey said the first impact of a currency depreciation is to reduce dollar exports because prices decline before sales volume expands.