Economic activity in the manufacturing sector expanded in July, and the overall economy grew for the 111th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.
Manufacturing expanded in July as the PMI registered 58.1 percent, a decrease of 2.1 percentage points from the June reading of 60.2 percent. This indicates strong growth in manufacturing for the 23rd consecutive month, led by continued expansion in new orders, production and employment. Inventories are expanding at a faster rate as a result of supplier deliveries improving compared to the prior 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 PMI for July (58.1 percent) corresponds to a 4.6-percent increase in real gross domestic product (GDP) on an annualized basis.”
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 111th consecutive month in the overall economy and the 23rd straight month of growth in the manufacturing sector.
Orders, Production and Inventory
The Inventories Index registered 53.3 percent in July, which is an increase of 2.5 percentage points when compared to the 50.8 percent reported for June, indicating growth in raw materials inventories. An Inventories Index greater than 43 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).
“Inventories are expanding again due to supplier delivery performance improvement in spite of longer lead times and continued disruptions in the transportation sector,” explains Fiore.
ISM’s New Orders Index registered 60.2 percent in July, which is a decrease of 3.3 percentage points when compared to the 63.5 percent reported for June, indicating growth in new orders for the 31st consecutive month.
“New orders expansion continued at high levels, with the index at or above 60 percent for the 15th straight month. Customer inventories remain too low,” adds Fiore. A New Orders Index above 52.4 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 58.5 percent in July, which is a decrease of 3.8 percentage points when compared to the 62.3 percent reported for June, indicating growth in production for the 23rd consecutive month.
“Production expansion continues. Labor constraints throughout the supply chain and transportation difficulties continue to limit full production potential,” says Fiore.
An index above 51.5 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.
ISM’s Backlog of Orders Index registered 54.7 percent in July, which is 5.4 percentage points lower than the 60.1 percent reported in June, indicating growth in order backlogs for the 18th consecutive month. Backlog expansion continued during the period, but at lower expansion levels. Continued low levels of customer inventory and strong new order expansion support production requirements in the near term.
Exports, Imports and Prices
ISM’s New Export Orders Index registered 55.3 percent in July, a decrease of 1 percentage point when compared to the 56.3 percent reported for June, indicating growth in new export orders for the 29th consecutive month.
“Five of the six big industry sectors continued to expand export activity during the period,” says Fiore.
The seven industries reporting growth in new export orders in July — listed in order — are: Petroleum & Coal Products; Nonmetallic Mineral Products; Computer & Electronic Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Machinery; and Chemical Products. The five industries reporting a decrease in new export orders in July are: Wood Products; Primary Metals; Paper Products; Plastics & Rubber Products; and Transportation Equipment. Six industries reported no change in new export orders in July.
ISM’s Imports Index registered 54.7 percent in July, a decrease of 4.3 percentage points when compared to the 59 percent reported for June, indicating that imports grew in July for the 18th consecutive month. Imports continued to expand, but at a lower level compared to the prior month.
The ISM Prices Index registered 73.2 percent in July, a decrease of 3.6 percentage points from the June reading of 76.8 percent, indicating an increase in raw materials prices for the 29th consecutive month. In July, 54.6 percent of respondents reported paying higher prices, 8.1 percent reported paying lower prices, and 37.3 percent of supply executives reported paying the same prices as in June.
“The price increases across all industry sectors continue. The Business Survey Committee noted price increases in metals (all steels, steel components, aluminum and copper), chemicals, corrugate, freight, electronic components, fuels, and wood products. Shortages continue in aluminum, electronics components, steels, steel-based products, electrical components and freight,” explains Fiore.
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.
ISM’s Employment Index registered 56.5 percent in July, an increase of 0.5 percentage point when compared to the June reading of 56 percent. This indicates growth in employment in July for the 22nd consecutive month.
“Employment maintained a modestly strong level of expansion and supported production growth during the month. Respondents continued to note labor-market issues as a constraint to their production and their suppliers’ production capacity,” adds Fiore.
An Employment Index above 50.8 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.