Economic activity in the manufacturing sector grew in June, with the overall economy notching a second month of growth after one month of contraction, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.
The report was issued last week by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee: “The June PMI registered 52.6 percent, up 9.5 percentage points from the May reading of 43.1 percent. This figure indicates expansion in the overall economy for the second straight month after April’s contraction, which ended a period of 131 consecutive months of growth.
“The New Orders Index registered 56.4 percent, an increase of 24.6 percentage points from the May reading of 31.8 percent. The Production Index registered 57.3 percent, up 24.1 percentage points compared to the May reading of 33.2 percent. The Backlog of Orders Index registered 45.3 percent, an increase of 7.1 percentage points compared to the May reading of 38.2 percent. The Employment Index registered 42.1 percent, an increase of 10 percentage points from the May reading of 32.1 percent. The Supplier Deliveries Index registered 56.9 percent, down 11.1 percentage points from the May figure of 68 percent.
“The Inventories Index registered 50.5 percent, 0.1 percentage point higher than the May reading of 50.4 percent. The Prices Index registered 51.3 percent, up 10.5 percentage points compared to the May reading of 40.8 percent. The New Export Orders Index registered 47.6 percent, an increase of 8.1 percentage points compared to the May reading of 39.5 percent. The Imports Index registered 48.8 percent, a 7.5-percentage point increase from the May reading of 41.3 percent.
“June signifies manufacturing entering an expected expansion cycle after the disruption caused by the coronavirus (COVID-19) pandemic. Comments from the panel were positive (1.3 positive comments for every one cautious comment), reversing the cautious trend which began in March. The manufacturing sector is reversing the heavy contraction of April, with the PMI increasing month-over-month at a rate not seen since August 1980, with several other indexes also posting gains not seen in modern times. Demand expanded, with the (1) New Orders Index growing at a respectable level, supported by New Export Orders Index contraction softening; (2) Customers’ Inventories Index returning to a level considered a positive for future production, and (3) Backlog of Orders Index softening, although still contracting. Consumption (measured by the Production and Employment indexes) contributed positively (a combined 34.1-percentage point increase) to the PMI calculation, with most companies’ employees returning to work in June. Inputs — expressed as supplier deliveries, inventories and imports — weakened, due to supplier delivery issues abating and import levels improving. Inventory levels reached parity with supply and demand.
Inputs contributed negatively (a combined 11-percentage point decrease) to the PMI calculation but were more than offset by the demand and consumption improvement. (The Supplier Deliveries and Inventories indexes directly factor into the PMI; the Imports Index does not.) Prices entered expansion again, but at marginal levels, supporting a positive outlook.
“As predicted, the growth cycle has returned after three straight months of COVID-19 disruptions. Demand, consumption and inputs are reaching parity and are positioned for a demand-driven expansion cycle as we enter the second half of the year. Among the six biggest industry sectors, Food, Beverage & Tobacco Products remains the best performing industry sector, and Computer & Electronic Products, and Chemical Products returned to respectable growth. Transportation Equipment and Fabricated Metal Products continue to contract, but at much softer levels,” says Fiore.
Of the 18 manufacturing industries, 13 reported growth in June, among them Textile Mills, Wood Products, Furniture & Related Products, Printing & Related Support Activities, Beverage & Tobacco Products, and Paper Products.
