Economic activity in the U.S. manufacturing sector contracted for the third straight month in May amid mounting COVID-19 fallout, the Institute for Supply Management (ISM) reported Monday.
The Purchasing Managers' Index stood at 43.1 percent in May, up 1.6 percentage points from the April reading, which was the lowest level since April 2009.
Any reading below 50 percent indicates the manufacturing sector is generally contracting.
"Three months into the manufacturing disruption caused by the coronavirus pandemic, comments from the panel were cautious regarding the near-term outlook," Timothy Fiore, chair of the ISM's manufacturing business survey committee, said in a statement.
Noting that the pandemic impacted all manufacturing sectors, Fiore said "May appears to be a transition month, as many panelists and their suppliers returned to work late in the month."
"However, demand remains uncertain, likely impacting inventories, customer inventories, employment, imports and backlog of orders," he said.
Among the six biggest industry sectors, Food, Beverage &Tobacco Products remains the only industry in expansion, according to the report. Transportation Equipment, Petroleum &Coal Products, and Fabricated Metal Products continue to contract at "strong levels," Fiore said.
Despite the continued contraction, Tim Quinlan, a senior economist at Wells Fargo Securities, wrote in an analysis that "a reading of 43.1 in May versus 41.5 in April tells us that the pace of decline is slowing."
"After some of the worst months on record, this is a step in a better direction," Quinlan said, while noting that "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," he said.
A business executive from the Transportation Equipment industry also highlighted the new protocols, saying in the ISM report that social distancing measures in the manufacturing plant and customer demand are "impacting the rate of production."
"Despite the COVID-19 issues, we are seeing an increase of quoting activity. This has not turned into orders yet, but it is a positive sign," a business executive from the Computer &Electronic Products industry said.
The U.S. Commerce Department reported on Thursday that economic activity in the first quarter contracted at an annual rate of 5 percent in a second estimate, 0.2 percentage point lower than the advance estimate.
That downwardly revised figure, however, still does not fully capture COVID-19's economic damage, and many analysts believe that the decline in the second quarter is expected to be much deeper.
U.S. Federal Reserve Chairman Jerome Powell recently said the unemployment rate could peak around 20 percent or 25 percent, and the U.S. economy could shrink dramatically in the second quarter, at an annualized rate of more than 20 percent or 30 percent.
In a virtual discussion held by Princeton University on Friday, the central bank chief said he was concerned about a second wave of COVID-19 infections, which he believed would dampen consumer confidence and hurt economic recovery.