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ISM: Manufacturing Building Momentum

Economic activity in the manufacturing sector expanded in July for the fifth consecutive month, while the overall economy grew for the 86th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

Mnet 192061 Manufacturing Ap 1

Economic activity in the manufacturing sector expanded in July for the fifth consecutive month, while the overall economy grew for the 86th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

Manufacturing expanded in July as the PMI registered 52.6 percent, a decrease of 0.6 percentage point from the June reading of 53.2 percent, indicating growth in manufacturing for the fifth consecutive month. 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 July (51.1 percent) corresponds to a 2.5 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI for July (52.6 percent) is annualized, it corresponds to a 3 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 July PMI indicates growth for the 86th consecutive month in the overall economy, while indicating growth in the manufacturing sector for the fifth consecutive month.

Orders, Production and Inventory

ISM’s New Orders Index registered 56.9 percent in July, which is a decrease of 0.1 percentage point when compared to the 57 percent reported for June, indicating growth in new orders for the seventh 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 55.4 percent in July, which is an increase of 0.7 percentage point when compared to the 54.7 percent reported for June, indicating growth in production in July for the seventh 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 49.5 percent in July, which is an increase of 1 percentage point when compared to the 48.5 percent reported for June, indicating raw materials inventories are contracting in July for the 13th consecutive month. 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 48 percent in July, a decrease of 4.5 percentage points when compared to the June reading of 52.5 percent, indicating contraction in order backlogs. Of the 86 percent of respondents who reported their backlog of orders, 16 percent reported greater backlogs, 20 percent reported smaller backlogs, and 64 percent reported no change from June.

Exports, Imports and Prices

ISM’s New Export Orders Index registered 52.5 percent in July, a decrease of 1 percentage point over the June reading of 53.5 percent. This month’s reading indicates growth in new export orders for the fifth consecutive month.

ISM’s Imports Index registered 52 percent in July, which was the same reading in June. This month’s reading indicates growth in imports for the second consecutive month after two months of no change and two months of contraction.

The ISM Prices Index registered 55 percent in July, which is a decrease of 5.5 percentage points when compared to the 60.5 percent reported for June, indicating an increase in raw materials prices for the fifth consecutive month. In July, 22 percent of respondents reported paying higher prices, 12 percent reported paying lower prices, and 66 percent of supply executives reported paying the same prices as in June. 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 49.4 percent in July, a decrease of 1 percentage point when compared to the June reading of 50.4 percent, indicating contraction in employment in July following one month of growth. 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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