Economic activity in the manufacturing sector expanded in June, and the overall economy grew for the 110th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

Manufacturing expanded in June as the PMI registered 60.2 percent, an increase of 1.5 percentage points from the May reading of 58.7 percent. This indicates strong growth in manufacturing for the 22nd consecutive month, led by continued expansion in new orders, production and employment. The PMI reached its highest level since February 2018, when it reached 60.8 points. However, inventories continue to struggle to maintain expansion levels as a result of supplier deliveries slowing further. 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 June (60.2 percent) corresponds to a 5.2 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 June PMI indicates growth for the 110th consecutive month in the overall economy and the 22nd straight month of growth in the manufacturing sector.

Orders, Production and Inventory

The Inventories Index registered 50.8 percent in June, which is an increase of 0.6 percentage point when compared to the 50.2 percent reported for May, indicating raw materials inventories grew in June. 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).

“Suppliers were not able to maintain desired inventory expansion levels consistent with production demands for the fourth straight month. Volatile supplier lead times and freight disruptions continue to impact inventory accounts,” says Fiore.

ISM’s New Orders Index registered 63.5 percent in June, which is a decrease of 0.2 percentage point when compared to the 63.7 percent reported for May, indicating growth in new orders for the 30th consecutive month.

“New orders expansion continued at high levels, with the index at or above 60 percent for the 14th straight month and the rolling three month average gaining 0.5 point. Customer inventories remain too low, and the Backlog of Orders Index is at 60 percent of higher for the third consecutive month,” adds Fiore.

ISM’s Production Index registered 62.3 percent in June, which is an increase of 0.8 percentage point when compared to the 61.5 percent reported for May, indicating growth in production for the 22nd consecutive month.

“Production expansion continues, with the index recording the second straight month of expansion growth at 60 percent or above. Labor constraints and, more significantly, supply chain disruptions 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 60.1 percent in June, which is 3.4 percentage points lower than the 63.5 percent reported in May, indicating growth in order backlogs for the 17th consecutive month. Backlog expansion continued during the period, as the index recorded the third straight month at over 60 percent. Strong backlog, extremely low levels of customer inventory and continued strong new order expansion indicate that production requirements should remain robust into Q3.

Exports, Imports and Prices

ISM’s New Export Orders Index registered 56.3 percent in June, an increase of 0.7 percentage point when compared to the 55.6 percent reported for May, indicating growth in new export orders for the 28th consecutive month.

“All six big industry sectors continued to expand export activity during the period, in spite of comments related to reciprocal tariff activity,” explains Fiore.

ISM’s Imports Index registered 59 percent in June, an increase of 4.9 percentage points when compared to the 54.1 percent reported for May, indicating that imports grew in June for the 17th consecutive month. Imports continued to expand to support production demand. Several panelists commented that import pace has increased due to tariff-related concerns.

The ISM Prices Index registered 76.8 percent in June, a decrease of 2.7 percentage points from the May level of 79.5 percent, indicating an increase in raw materials prices for the 28th consecutive month. In June, 56.9 percent of respondents reported paying higher prices, 3.3 percent reported paying lower prices, and 39.9 percent of supply executives reported paying the same prices as in May.

“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, plastics and wood products. Shortages continue in aluminum, electronics components, steels, steel-based products, electrical components and freight,” says 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.

Employment

ISM’s Employment Index registered 56 percent in June, a decrease of 0.3 percentage point when compared to the May reading of 56.3 percent. This indicates growth in employment in June for the 21st consecutive month.

“Employment maintained a modestly strong level of expansion and supported production growth during the month. Respondents noted labor market issues as a constraint to their production and their suppliers’ production capacity,” concludes 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.

By: DocMemory
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