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PMI Index Falls to 49.7% in June

Leading economic indicator reflects contraction in the U.S. manufacturing economy.

Economic activity in the manufacturing sector contracted in June for the first time since July 2009, according to a newly released report from the Institute for Supply Management. The bellwether PMI Index—a barometer measuring confidence1 among purchasers and inventory managers—fell 3.8 points to 49.7% from May’s reading.

Despite the dip in the PMI Index, the overall U.S. economy actually grew in June—marking the 37th consecutive month of growth.2

Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee, put the numbers in perspective: “The past relationship between the PMI and the overall economy indicates that the average PMI for January through June (53 percent) corresponds to a 3.5 percent increase in real gross domestic product, or GDP,” he explained. “In addition, if the PMI for June (49.7 percent) is annualized, it corresponds to a 2.4 percent increase in real GDP annually.”

Of the 18 manufacturing industries, seven are reporting growth in June, in the following order: Furniture & Related Products; Printing & Related Support Activities; Fabricated Metal Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Machinery; and Primary Metals.

The nine industries reporting contraction in June—listed in order—are: Nonmetallic Mineral Products; Apparel, Leather & Allied Products; Paper Products; Plastics & Rubber Products; Chemical Products; Computer & Electronic Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; and Transportation Equipment.

Survey respondents suggested the economy is slowing slightly due to concerns in Europe. They also cited slowing world economies, particularly China.

NEW ORDERS

More telling than the overall PMI Index is the drop-off in ISM’s New Orders Index, which plunged 12.3 percentage points to 47.8 percent in June. In fact, this movement represents a contraction in new orders for the first time since April 2009, when the New Orders Index registered 46.8 percent.3

The 10 industries reporting a decrease in new orders during June — listed in order — are: Nonmetallic Mineral Products; Wood Products; Plastics & Rubber Products; Petroleum & Coal Products; Chemical Products; Food, Beverage & Tobacco Products; Transportation Equipment; Computer & Electronic Products; Machinery; and Apparel, Leather & Allied Products.

Those industry sectors reporting growth in new orders in June—listed in order—are: Printing & Related Support Activities; Furniture & Related Products; Miscellaneous Manufacturing; Fabricated Metal Products; Primary Metals; Electrical Equipment, Appliances & Components; and Paper Products.

MANUFACTURING EMPLOYMENT

June's lower PMI Index overshadowed a newly released U.S. Department of Labor report that indicated an increase in manufacturing employment. According to Bureau of Labor Statistics data, the U.S. economy added 11,000 manufacturing positions during the month of June. Specifically, employment increased in motor vehicles and parts as well as fabricated metal products.

View the complete Manufacturing ISM Report On Business online.

REFERENCES

  1. A PMI Index reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
  2. A PMI Index in excess of 42.6 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the June PMI indicates growth for the 37th consecutive month in the overall economy, but indicates contraction in the manufacturing sector for the first time since July 2009, when the PMI registered 49.2 percent.
  3. 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).

 

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