ISM: New Orders, Production Continue To Accelerate

Economic activity in the manufacturing sector expanded in June for the fourth consecutive month, while the overall economy grew for the 85th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

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Economic activity in the manufacturing sector expanded in June for the fourth consecutive month, while the overall economy grew for the 85th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

Manufacturing expanded in June as the PMI registered 53.2 percent, an increase of 1.9 percentage points from the May reading of 51.3 percent, indicating growth in manufacturing for the fourth consecutive month, and is the highest reading since February 2015 when the PMI registered 53.3 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

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Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee states, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through June (50.8 percent) corresponds to a 2.4 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI for June (53.2 percent) is annualized, it corresponds to a 3.2 percent increase in real GDP annually.”

A PMI above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the June PMI indicates growth for the 85th consecutive month in the overall economy, while indicating growth in the manufacturing sector for the fourth consecutive month.

Orders, Production and Inventory

ISM’s New Orders Index registered 57 percent in June, which is an increase of 1.3 percentage points when compared to the 55.7 percent reported for May, indicating growth in new orders for the sixth consecutive month. A New Orders Index above 52.2 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

ISM’s Production Index registered 54.7 percent in June, which is an increase of 2.1 percentage points when compared to the 52.6 percent reported for May, indicating growth in production in June for the sixth consecutive month. An index above 51.3 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The Inventories Index registered 48.5 percent in June, which is an increase of 3.5 percentage points when compared to the 45 percent reported for May, indicating raw materials inventories are contracting in June for the 12th consecutive month, but at a slower rate than in May. An Inventories Index greater than 42.8 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

ISM’s Backlog of Orders Index registered 52.5 percent in June, an increase of 5.5 percentage points when compared to the May reading of 47 percent, indicating growth in order backlogs. Of the 89 percent of respondents who reported their backlog of orders, 24 percent reported greater backlogs, 19 percent reported smaller backlogs, and 57 percent reported no change from May.

Exports, Imports and Prices

ISM’s New Export Orders Index registered 53.5 percent in June, an increase of 1 percentage point over the May reading of 52.5 percent. This month’s reading indicates growth in new export orders for the fourth consecutive month.

ISM’s Imports Index registered 52 percent in June, an increase of 2 percentage points over the May reading of 50 percent, indicating growth in imports in June.

The ISM Prices Index registered 60.5 percent in June, which is a decrease of 3 percentage points when compared to the 63.5 percent reported for May, indicating an increase in raw materials prices for the fourth consecutive month. In June, 27 percent of respondents reported paying higher prices, 6 percent reported paying lower prices, and 67 percent of supply executives reported paying the same prices as in May. A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

Employment

ISM’s Employment Index registered 50.4 percent in June, an increase of 1.2 percentage points when compared to the May reading of 49.2 percent, indicating growth in employment in June following six consecutive months of employment contraction. An Employment Index above 50.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

The monthly Manufacturing ISM Report on Business is based on the survey results of approximately 350 professionals across 18 different industry sectors. The report is released on the first business day of each month and features the PMI Index as its key measure. For more information on the Institute for Supply Management, visit www.ism.ws.

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