Subscribe to our free, weekly email newsletter!


Logistics business: ISM manufacturing index is down but still showing growth signs

image

Economic activity in the manufacturing sector expanded in June for the 11th consecutive month, and the overall economy grew for the 14th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.

By Jeff Berman, Group News Editor
July 01, 2010

The Institute of Supply Management reported today that while manufacturing activity in June was not as strong as it was in May, the economic recovery is moving forward.

The index the ISM uses to measure the manufacturing sector, or PMI, was 56.2 percent in June, which is down from 59.7 percent in May and 60.4 percent in April. Any reading that is 50 or better represents economic growth. June represents the 11th consecutive month that the PMI is more than 50, coupled with the overall economy on a growth track for 14 straight months.

Norbert J. Ore, chair of the ISM’s Manufacturing Business Survey Committee said in a statement that the manufacturing sector continued to grow during June; however, the rate of growth as indicated by the PMI slowed when compared to May.

“The lower reading for the PMI came from a slowing in the New Orders [58.5 percent in June compared to 65.7 percent in May] and Production Indexes [61.4 percent in June and 66.6 percent in May],” said Ore.

“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 sector appears to be solidly entrenched in the recovery. Comments from the 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, and June appears to validate that forecast.”

Other notable metrics from the June report are: employment at 57.8 percent compared to 59.8 percent in May; supplier deliveries at 57.3 percent compared to 61.0 in May; inventories at 45.8 percent compared to 45.6 percent in May and prices at 57.0 percent compared to 77.0 percent in May.

The ISM also reported that 13 of the 18 manufacturing industries it tracks showed growth in June, down from 16 in May.

In an interview, Ore said that the fact that the PMI was down again is not a huge cause for concern.

“When [this] is down, there is a natural tendency to think things are slowing down,” said Ore. “But I don’t think that is a good description. At 56.2 percent, you still have very robust growth in manufacturing. If the whole economy were doing as well as manufacturing is, it would be growing at 4.9 percent. But the whole economy is not tracking with manufacturing this time around, with sectors like services and small businesses that are lagging behind, which is part of the reason we are seeing overall growth lag behind manufacturing.”

Reasons for sustained manufacturing growth cited by Ore include reduced inventories, lower payrolls, a slowdown in investment, and shutting capacity, and firm pricing, which led to leaner operations.

This allowed manufacturers to be lean and efficient, which Ore said has not occurred in other industries.

Taking a closer look at the inventory numbers, Ore said that we have gone through a significant de-stocking phase to begin with and now are in restocking mode, with most manufacturers reaching a balance with regard to restocking. The only industry that struggled with this he said was computers and electronics, which is experiencing shortages due to a high number of SKU’s that were not manufactured during the slowdown due to low demand.

Looking towards the second half of 2010, Ore said ISM’s April numbers indicated the second half of 2010 would not be as strong as the first half, in terms of the overall growth rate.

“I think that was a reasonable expectation,” said Ore. “When I assess the economy, I look at three major sectors: automobile, housing, and technology. Technology is doing well. Housing has failed to ever get going. Auto picked up during the first half of the year and is likely to stay the same or fall off slightly in the second half. And the consumer has been terrorized and is not likely to jump back in.”

The second half is likely to be a challenge, according to Ore, although he does not expect a double-dip recession to occur. Instead, there is the risk of softer consumer demand in the second half.

About the Author

Jeff Berman headshot
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. .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

The Department of Commerce reported that January retail sales were up 0.2 percent compared to December and up 3.7 percent annually at $449.9 billion, and the NRF reported that January retail sales, which exclude automobiles, gas stations, and restaurants, rose 0.6 percent over December and 1.4 percent compared to January 2015.

On the freight shipments side, Cass reported that January shipments––at 1.025––trailed December by 1.3 percent and January 2016 by 0.2 percent. These declines were less than the 4.9 percent drop from November to December, though, and January shipments still topped the 1.0 mark for the 65th straight month in December.

The Department of Transportation’s Bureau of Transportation Statistics (BTS) reported this week that its Freight Transportation Services Index (TSI) saw a 0.4 percent decline from November to December, its second straight decline on the heels of a 1.0 percent decrease from October to November.

Carloads saw a 11.7 percent annual decline at 241,680, and intermodal containers and trailers rose 10.5 percent to 262,830

An amendment to the International Maritime Organization’s Safety of Life at Sea convention will go into effect requiring all shippers (importers and exporters) to certify and submit the Verified Gross Mass – the combined weight of the cargo and the container – to the steamship line and terminal operator in advance of loading the container aboard a vessel.

Article Topics

News · All topics

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2016 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA