Manufacturing activity tumbles in June, according to ISM data

While manufacturing has been a constant source of strong economic growth in an economy replete with warning signs, the Institute of Supply Management’s June Manufacturing report on Business released today showed that manufacturing activity for the month was not as strong as it has been over the course of the last three years.

By ·

While manufacturing has been a constant source of strong economic growth in an economy replete with warning signs, the Institute of Supply Management’s June Manufacturing report on Business released today showed that manufacturing activity for the month was not as strong as it has been over the course of the last three years.

In June, the PMI, ISM’s index used to measure manufacturing activity, was 49.7, which was 3.8 percent below May. A reading of 50 or higher indicates growth is occurring. Economic activity in the manufacturing sector had expanded for 34 straight months prior to June’s contraction and overall economic activity has expanded for 37 straight months. June was also below the 12-month average of 52.6 and marked the first time it had been below 50 since July 2009.

ISM reported that New Orders, which are commonly referred to as the ‘engine’ which drives manufacturing, tumbled 12.3 percent to 47.8, following May’s 60.1, which was its highest level since April 2011. New Orders had not seen this type of drop since October 2001, when it fell 12.4 percent.

Production was down 4.6 percent at 51.0. Employment was down 0.3 percent at 56.6. Even with declines in their respective declines, each of these metrics were in the 50’s, pointing to continued positive growth.

“One data point does not make or break a trend,” said Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, in an interview. “From February through May, we had seen moderate growth, but this is a little different for sure.”

Holcomb added that the decrease in New Orders also leads to declines in Exports, which dipped 6.0 percent in June to 47.5, as well as domestic orders, which are often viewed as big drivers in overall order activity.

Another contributing factor for June’s decline, according to Holcomb, was Inventories, which fell 2.0 percent to 44.0.

“This shows a continuing leanness in inventories, which is not a bad thing necessarily but it is certainly a contributor,” said Holcomb.

Inventories have fallen from 50 in March to 48.5 in April to 46.0 in May to June’s 44.0.

Looking ahead, Holcomb said that while the June data was a surprise to most, it is not out of the question to potentially see July come in with better numbers. The reason for that, he said, is there have been months below 50 before—with the last one occurring in 2007—which have recovered a lot of ground the subsequent month.

“We won’t know how it ended up until later in the month, but we are not getting to nervous about June’s 49.7, and let’s not forget that anything above 42.6 represents expansion in the overall economy, which has now been ongoing for more than 3 years.”

June Prices saw a 10.5 percent decline to 37.0. Holcomb said that in recent weeks the prices of raw materials have gone down 24 percent in the last two months, with this drop-off starting with lower fuel and energy prices and translating pretty quickly into other commodities like resin and fuel products that require a lot of energy to formulate.

Overall, he explained that lower prices can be viewed as good news and bodes well for being able to buy inventories at lower prices, as well as serve as a reflection of demand, which is softening across the board and translating into lower prices.


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

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!

Latest Whitepaper
Managing Global Transportation: How NVOCCs can operate more profitably
Global transportation isn’t getting any easier to manage. With new rules and regulations to learn, new compliance requirements to adhere to, and new customers and business partners to onboard, navigating the complexities of the global market can be difficult for any company. To fully leverage their global supply chains, firms need a robust, global transportation management system that helps them navigate this ever-changing environment.
Download Today!
From the July 2016 Issue
While it’s currently a shippers market, the authors of this year’s report contend that we’ve entered a “period of transition” that will usher in a realignment of capacity, lower inventories, economic growth and “moderately higher” rates. It’s time to tighten the ties that bind.
2016 State of Logistics: Third-party logistics
2016 State of Logistics: Ocean freight
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
Getting the most out of your 3PL relationship
Join Evan Armstrong, president of Armstrong & Associates, as he explains how creating a balanced portfolio of "Top 50" global and domestic partners can maximize efficiency and mitigate risk.
Register Today!
EDITORS' PICKS
Regional ports concentrate on growth and connectivity
With the Panama Canal expansion complete, ocean cargo gateways in the Caribbean are investing to...
Digital Reality Check
Just how close are we to the ideal digital supply network? Not as close as we might like to think....

Top 25 ports: West Coast continues to dominate
The Panama Canal expansion is set for late June and may soon be attracting more inbound vessel calls...
Port of Oakland launches smart phone apps for harbor truckers
Innovation uses Bluetooth, GPS to measure how long drivers wait for cargo