Economic activity in the manufacturing sector expanded in June, and the overall economy grew for the 97th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.
Manufacturing expanded in June as the PMI registered 57.8 percent, an increase of 2.9 percentage points from the May reading of 54.9 percent and its highest level since August 2014, when it registered 57.9 percent. This indicates growth in manufacturing for the 10th consecutive month. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee states, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through June (56.4 percent) corresponds to a 4.1 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI for June (57.8 percent) is annualized, it corresponds to a 4.6 percent increase in real GDP annually.”
A PMI above 43.3 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the June PMI indicates growth for the 97th consecutive month in the overall economy and the 10th straight month of growth in the manufacturing sector.
Orders, Production and Inventory
ISM’s New Orders Index registered 63.5 percent in June, which is an increase of 4 percentage points when compared to the 59.5 percent reported for May, indicating growth in new orders for the 10th consecutive month. New orders returned to the above 60 level last seen in March 2017 and continues to signal strong order intake for calendar year 2017. A New Orders Index above 52.3 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 62.4 percent in June, which is an increase of 5.3 percentage points when compared to the 57.1 percent reported for May, indicating growth in production for the 10th consecutive month and reaching its highest level since February 2017 when it registered 62.9 percent. An index above 51.4 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.
The Inventories Index registered 49 percent in June, which is a decrease of 2.5 percentage points when compared to the 51.5 percent reported for May, indicating raw materials inventories are contracting in June. An Inventories Index greater than 42.9 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 57 percent in June, an increase of 2 percentage points from the 55 percent reported for May, indicating growth in order backlogs for the fifth consecutive month. Of the 91 percent of respondents who reported their backlog of orders, 29 percent reported greater backlogs, 15 percent reported smaller backlogs, and 56 percent reported no change from May.
Exports, Imports and Prices
ISM’s New Export Orders Index registered 59.5 percent in June, an increase of 2 percentage points when compared to the 57.5 percent reported for May, indicating growth in new export orders for the 16th consecutive month.
ISM’s Imports Index registered 54 percent in June, an increase of 0.5 percentage point when compared to the 53.5 percent reported for May, indicating that imports are growing in June for the fifth consecutive month.
The ISM®= Prices Index registered 55 percent in June, a decrease of 5.5 percentage points when compared to the May reading of 60.5 percent, indicating an increase in raw materials prices for the 16th consecutive month. In June, 27 percent of respondents reported paying higher prices, 17 percent reported paying lower prices, and 56 percent of supply executives reported paying the same prices as in May.
Fiore commented, “A review of ‘Commodities Up and Down in Price’ continues to show price relief in basic commodities such as natural gas, distillates, oil, plastics, and steel, while finished items of these materials are showing some price growth. Foodstuffs, both animal and plant based, are also showing some price expansion.”
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 57.2 percent in June, an increase of 3.7 percentage points when compared to the May reading of 53.5 percent and its highest level since March 2017, when it registered 58.9 percent. This indicates growth in employment in June for the ninth consecutive month. Employment levels have been expanding since October 2016. An Employment Index above 50.5 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.