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June ISM Report Bodes Well for Manufacturing

Activity in the manufacturing sector expanded in June for the eleventh consecutive month, according to the Institute for Supply Management.

Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee, the manufacturing sector continued to grow during June. This despite a lower PMI Index—a barometer of confidence among purchasing managers. June’s PMI Index hit 56.2 percent, a decrease of 3.5 percentage points when compared to May's reading of 59.7 percent (see table below). Note: A reading above 50 percent indicates that the manufacturing economy is generally expanding, while a reading below 50 percent suggests a contraction.

“The lower reading for the PMI came from a slowing in the new orders and production indexes,” Ore said. “We are now 11 months into the manufacturing recovery, and given the robust nature of recent growth, it is not surprising that we would see a slower rate of growth at this time.”

The main point, according to Ore, is that the manufacturing sector appears to be solidly entrenched in the recovery. He noted that comments from the PMI survey respondents remain generally positive, but expectations have been that the second half of the year will not be as strong in terms of the rate of growth, with June appearing to validate that forecast.

Another point of note: the June PMI number indicates growth for the 14th consecutive month in the overall economy. “The past relationship between the PMI and the overall economy indicates that the average PMI for January through June (58.5 percent) corresponds to a 5.5-percent increase in real gross domestic product, or GDP,” Ore explained. “In addition, if the PMI for June (56.2 percent) is annualized, it corresponds to a 4.8- percent increase in real GDP annually."

MANUFACTURING AT A GLANCE-JUNE 2010
IndexSeries Index-JuneSeries Index-May

Percentage Point Change

DirectionRate of ChangeTrend (No. of months moving in current direction)
PMI56.259.7-3.5GrowingSlower11
New Orders58.565.7-7.2GrowingSlower12
Production61.466.6-5.2GrowingSlower13
Employment57.859.8-2.0GrowingSlower7
Supplier Deliveries57.361-3.7SlowingSlower13
Inventories45.845.6+0.2ContractingSlower3
 
PERFORMANCE BY INDUSTRY

Thirteen of the 18 manufacturing industries tracked by the Institute of Supply Management reported growth in June, in the following order:

  • Plastics & Rubber Products
  • Transportation Equipment
  • Printing & Related Support Activities
  • Computer & Electronic Products
  • Electrical Equipment, Appliances & Components
  • Paper Products
  • Fabricated Metal Products
  • Food, Beverage & Tobacco Products
  • Furniture & Related Products
  • Petroleum & Coal Products
  • Nonmetallic Mineral Products
  • Miscellaneous Manufacturing
  • Chemical Products

The following industries reported a contraction in June: apparel, leather and allied products; wood products; and machinery.

NEW ORDERS

The Institute for Supply Management’s New Orders Index registered 58.5 percent in June, which marks a decrease of 7.2 percentage points when compared to the 65.7 percent reported in May. (A New Orders Index above 50.2 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders.) In spite of the slower rate, June marks the 12th consecutive month of growth in the New Orders Index.

The 13 industries reporting growth in new orders in June—listed in order—are as follows:

  • Plastics & Rubber Products
  • Petroleum & Coal Products
  • Primary Metals
  • Computer & Electronic Products
  • Fabricated Metal Products
  • Paper Products
  • Food, Beverage & Tobacco Products
  • Nonmetallic Mineral Products
  • Furniture & Related Products
  • Printing & Related Support Activities
  • Transportation Equipment
  • Chemical Products
  • Electrical Equipment, Appliances & Components

 Four industries reported decreases in new orders in June: machinery; wood products; apparel, leather and allied products; and miscellaneous manufacturing.

PRODUCTION & INVENTORIES

The Institute for Supply Management’s Production Index registered 61.4 percent in June, a decrease of 5.2 percentage points from the May reading of 66.6 percent. (An index above 51 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.) Meanwhile, manufacturers' inventories contracted in June for the third consecutive month as the Inventories Index registered 45.8 percent. The index is 0.2 percentage point higher than the 45.6 percent reported in May. Note: An Inventories Index greater than 42.6 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' figures on overall manufacturing inventories (in chained 2000 dollars).

The complete June Report is available online.
 

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