The key ISM manufacturing new orders index may have dropped sharply in May, judging from already-released regional Federal Reserve surveys – see first chart. While the regional surveys show a slump in current orders, however, expectations remain relatively upbeat, suggesting that much of the weakness reflects temporary supply-chain disruption due to the Japanese earthquake. (The ISM survey is released tomorrow. Four of five Fed surveys have been released for May, with the Dallas Fed survey due later today.)

Japanese supply is coming back on line, with manufacturing output up by 1.0% in April and expected to rise by 16.3% over May-June, according to figures released today. The suggestion that ISM new orders will rebound from a May low is also supported by the latest Federation of Korean Industries survey, which often leads the ISM and shows a recovery in manufacturing expectations following weakness last month – second chart.

Intermediate-maturity Treasury yields tend to mirror changes in ISM new orders – third chart. Yields appear to have discounted a further ISM decline in May and could move back up if orders rebound over the summer.

As discussed last week, US monetary trends remain expansionary, suggesting solid economic growth over the remainder of 2011. Money of zero maturity (MZM) – comprising currency, checkable deposits, savings deposits and money funds – rose at an 11% annualised rate over the last 13 weeks, up from 2% over the prior three months. Swings in short-term MZM expansion often lead Treasury yields – fourth chart.