ISM report points to continued manufacturing growth in July

Even with a slight decline from June, manufacturing growth remained intact in July to kick off the second half of 2016, according to the most recent edition of the Manufacturing Report on Business released today by the Institute for Supply Management.

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Even with a slight decline from June, manufacturing growth remained intact in July to kick off the second half of 2016, according to the most recent edition of the Manufacturing Report on Business released today by the Institute for Supply Management (ISM).

The PMI, the index used by the ISM to measure growth, was 52.6% (a reading of 50 or higher indicates growth), in July, down slightly from June’s 53.2, which marked the highest level going back to February 2015, when it was at 53.3.  July’s PMI is 2.2% above the 12-month average of 50.4. And the ISM said that the over all economy expanded in July for the 86th month in a row, with manufacturing, in terms of PMI, now up for the last five months. 

Three of the report’s core four metrics, including the PMI, were down in July. New orders, which are often cited as the engine that drives manufacturing, were off a mere 0.1 percent and at a still solid 56.9 and have grown for the past seven months. June’s 57.0 for new orders was its highest level going back to December 2014’s 57.4. Production saw a 0.7 percent increase to 55.4, also growing for the last seven months, coming off of July’s 54.7, which was its highest output since July 2015’s 55.0. And employment dipped 1.0 percent to 49.4.

ISM said that of the 18 manufacturing sectors contributing to the report, 13 reported growth in July, including: Textile Mills; Printing & Related Support Activities; Miscellaneous Manufacturing; Wood Products; Furniture & Related Products; Chemical Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Nonmetallic Mineral Products; Petroleum & Coal Products; and Computer & Electronic Products. The seven industries reporting contraction in June were Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Machinery; Primary Metals; Transportation Equipment; and Paper Products.

ISM member respondents cited in this month’s report were somewhat mixed. A machinery respondent said that retail orders have slowed over the past six weeks, with its industry seeing it everywhere, coupled with increasing steel prices. A nonmetallic mineral products respondent cited how strong demand in his market has business on an upswing. And a plastic and rubber products respondent pointed to more optimism in the markets, with the caveat that the U.S. Presidential race could dampen the mood of the sector.

Brad Holcomb, chair of the ISM Manufacturing Survey Business Committee, said in an interview that this report is decent, especially when taking into account it was coming off of 12-to-18 month highs for key metrics, including PMI, new orders, and production.

“This report looks a lot like June’s,” he said. “We are coming off of highs in those three categories. New orders and production are still really strong and led into the backlog or orders down 4.5 percent to 48.0, which is not a bad thing, as that is what the backlog is for. It is like a cushion. Employment is likely to hang around 50 for the rest of the year and result in zero employment growth, according to our spring survey. It is not an issue and was very much expected.”

Supplier deliveries slowed down 3.6 percent to 51.8 (a reading over 50 indicates slower deliveries), which Holcomb said is preferred in a growth environment as it means the supply chain is tight and commerce is happening.

Inventories at 49.5 saw a 1 percent gain compared to June and contracted for the 13th month in a row.  Inventories are heading to the 50 mark, with an eye on new orders so that there is the correct volume and types of inventories available to meet those needs, Holcomb explained.

Prices dropped 5.5 percent to 55.0, with Holcomb saying that the attenuation of the increase is related to oil both indirectly and oil. New export orders at 52.5 were down 1.0 percent and imports were flat at 52.0.

Looking ahead, Holcomb expects manufacturing activity should continue to see decent growth, despite poor GDP growth, which has been anemic for the last several quarters.

“Manufacturing has long been a bellwether for the economy,” he said. “The fact that it remains strong is a positive over all for the economy, even though the government numbers do not reflect that, as they tend to frequently get revised. The combination of the ISM’s NMI and PMI reports reflect a much better sense of what is happening from people on the ground and working in the factories as opposed to someone pouring through spreadsheets in an office in Washington.”

About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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