Home ISM: Manufacturing, Economy Challenged But Still Growing
July 5, 2022
ISM: Manufacturing, Economy Challenged But Still Growing

By Mike Duff

Contributing Editor

Economic activity in the United States manufacturing sector grew in June, with the overall economy achieving a 25th consecutive month of growth, according to supply executives polled as part of the Manufacturing Institute for Supply Management Report On Business.

Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said the June Manufacturing Purchasing Managers’ Index registered 53%, down 3.1 percentage points from the May reading of 56.1%, a figure that indicates expansion in the overall economy for the 25th month in a row after contraction in April and May 2020.

The May reading did come in softer than the month previous.

“This is the lowest Manufacturing PMI reading since June 2020, when it registered 52.4%,” Fiore said. “The New Orders Index reading of 49.2% is 5.9 percentage points lower than the 55.1% recorded in May. The Production Index reading of 54.9% is a 0.7-percentage point increase compared to May’s figure of 54.2%. The Prices Index registered 78.5%, down 3.7 percentage points compared to the May figure of 82.2%. The Backlog of Orders Index registered 53.2%, 5.5 percentage points below the May reading of 58.7%. The Employment Index contracted for a second straight month at 47.3%, 2.3 percentage points lower than the 49.6% recorded in May. The Supplier Deliveries Index reading of 57.3% is 8.4 percentage points lower than the May figure of 65.7%. The Inventories Index registered 56%, 0.1 percentage point higher than the May reading of 55.9%. The New Export Orders Index reading of 50.7% is down 2.2 percentage points compared to May’s figure of 52.9%. The Imports Index climbed into expansion territory, up two percentage points to 50.7% from 48.7% in May.”

Fiore indicated demand continues to power the U.S. manufacturing sector, if less so in June, while held back by supply chain constraints.

“Despite the Employment Index contracting in May and June, companies improved their progress on addressing moderate-term labor shortages at all tiers of the supply chain, according to Business Survey Committee respondents’ comments,” Fiore maintained. “Panelists reported lower rates of quits compared to May. Prices expansion slightly eased for a third straight month in June, but instability in global energy markets continues. Sentiment remained optimistic regarding demand, with three positive growth comments for every cautious comment. Panelists continue to note supply chain and pricing issues as their biggest concerns. Demand dropped, with the New Orders Index contracting, Customers’ Inventories Index remaining at a very low level, though it increased and Backlog of Orders Index decreasing but still in growth territory. Consumption, measured by the Production and Employment indexes, was mixed during the period, with a combined minus-1.6-percentage point change to the Manufacturing PMI calculation.

“The Employment Index contracted for the second month in a row after expanding for eight straight months, September through April, but panelists again indicated month-over-month improvement in ability to hire in June,” Fiore continued. “Challenges with turnover, quits and retirements, and resulting backfilling continue to plague efforts to adequately staff organizations, but to a lesser degree compared to the previous month. Inputs — expressed as supplier deliveries, inventories and imports — continued to constrain production expansion but to a lesser extent compared to May. The Supplier Deliveries Index indicated deliveries slowed at a slower rate in June, which was supported by a slight increase in the Inventories Index. The Imports Index expanded in June after one month of contraction preceded by six consecutive months of expansion. The Prices Index increased for the 25th consecutive month, at a slower rate compared to May.”

Manufacturing performed well for the 25th straight month, though with signs of new order rate softening, according to ISM. Yet the root cause is difficult to determine, Fiore stated, be it the result of demand reduction, adjustment for excessive lead times causing order rate adjustments or a combination of both.

“Employment activity remains strongly positive in spite of the uncertainty with new order rates,” noted Fiore.

Fifteen manufacturing industries reported growth in June. They are, listed in order of growth, Apparel, Leather & Allied Products, Textile Mills, Printing & Related Support Activities, Computer & Electronic Products, Machinery, Electrical Equipment, Appliances & Components, Primary Metals, Nonmetallic Mineral Products, Plastics & Rubber Products, Transportation Equipment, Fabricated Metal Products, Miscellaneous Manufacturing, Petroleum & Coal Products, Food, Beverage & Tobacco Products, and Chemical Products. Three industries reporting contraction in June compared to May: Paper Products, Wood Products and Furniture & Related Products.

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