June manufacturing index is down slightly, reports ISM
July 01, 2014
Even with a miniscule sequential decline in its key metric, manufacturing still showed growth in June, according to the June edition of the Manufacturing Report on Business from the Institute for Supply Management (ISM).
The PMI, the ISM’s index to measure growth, dropped 0.1 percent to 55.3 in June (a PMI of 50 or greater represents growth). This is 0.2 percent above the 12-month average of 55.1. The PMI has grown in 17 of the last 19 months, with economic activity in the manufacturing sector expanding for the last 13 months as the overall economy was up for the 61st consecutive month.
Including the PMI, two of the report’s four key metrics were down and two were up in June. Production dropped 1.0 percent to 60.0, and new orders, often known as the engine driving manufacturing, rose 2.0 percent to 60.0 and showed growth for the 13rd straight month. Employment was flat at 52.8 while showing growth for the 12th straight month.
With the PMI relatively flat from May to June, 15 of the 18 manufacturing industries reported growth in June. And the respondent comments within the report were generally positive.
A food, beverage, and tobacco products respondent explained that business volume is increasing at a good pace and consumers appear to be spending more, and a computer and electronic products respondent noted that June represented another strong month overall.
“Things are in a good position, even with basically flat growth,” said Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, in an interview. “Through the first five months of the year there were consecutive month-over-month increases, and we are essentially at the same level.”
Holcomb also observed that the positive comments are generally indicating business volumes are somewhere between stable to improving to strong, depending upon the specific industry.
The average PMI for 2013 was 53.9 and finished the year on a strong note, while in 2014, which started on a softer note, has a year-to-date average of 54.0, which emphasizes the point that 2014 manufacturing output is trending well so far.
Looking at new orders, Holcomb said July represents the highest level they have hit so far this year, with 12 manufacturing industries reporting growth, coupled with another strong month for production, too.
July inventories were flat at 53.0 and supplier deliveries were down 1.3 percent to 51.9, with the latter having shown slowness for 13 straight months.
“Supplier deliveries are getting ‘less slow,’ which means suppliers are catching up, and with inventories at the same level for three consecutive months it really shows an appetite for carrying extra inventory in anticipation of continuing strong new orders,” Holcomb said.
Prices dropped 2.0 percent to 58.0 but are still increasing at a slower pace, when compared to the difference from May to June, with the rate of increase leveling off to a degree. This is also in line with the ISM’s prediction of a less than 2 percent annual increase in the price of raw materials.
Backlog of orders in July dropped 4.5 percent to 48.0 and was directly tied to the strong production number of 60, which was working off new orders and backlog of orders and utilizing the labor and assets available in the month of June, Holcomb said.
On a year-to-date basis, Holcomb said that manufacturing is in a good place.
“I would characterize the first six months of the year as progressive growth, with good trends set up in the first half of the year and positioning things well for a continuation of that into the second half,” Holcomb concluded.
Subscribe to Logistics Management magazine
entire logistics operation. Start your FREE subscription today!