Economic activity in the manufacturing sector grew in July, with textile mills, and apparel, leather and allied products reporting increases, U.S. supply chain executives said in the latest Manufacturing Institute for Supply Management (ISM) “Report on Business.”
“The July Purchasing Managers Index (PMI) registered 54.2 percent, up 1.6 percentage points from the June reading of 52.6 percent,” said Timothy R. Fiore, chair of the ISM manufacturing business survey committee. “This figure indicates expansion in the overall economy for the third month in a row after a contraction in April, which ended a period of 131 consecutive months of growth.”
A reading above 50 percent indicates that the manufacturing economy is generally expanding, while a reading below 50 percent shows it is generally contracting. A PMI above 42.8 percent over a period of time generally indicates an expansion of the overall economy, meaning the July PMI indicates the overall economy grew in July for the third consecutive month following contraction in April, the report said.
“The past relationship between the PMI and the overall economy indicates that the PMI for July corresponds to a 3.3 percent increase in real gross domestic product (GDP) on an annualized basis,” Fiore said. “In July, manufacturing continued its recovery after the disruption caused by the coronavirus pandemic. Panel sentiment was generally optimistic, continuing a trend from June.”
This came after the U.S. real GDP for the second quarter ended June 30 decreased at an annual rate of 32.9 percent, according to the Bureau of Economic Analysis (BEA).
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“The decline in second quarter GDP reflected the response to COVID-19, as ‘stay-at-home’ orders issued in March and April were partially lifted in some areas of the country in May and June, and government pandemic assistance payments were distributed to households and businesses,” BEA said. “This led to rapid shifts in activity, as businesses and schools continued remote work and consumers and businesses canceled, restricted or redirected their spending.”
ISM’s report said demand and consumption continued to drive expansion growth, with inputs remaining at parity with supply and demand. Of the 18 manufacturing industries, 13 reported growth in July, including textile mills, and apparel, leather and allied products.
ISM’s New Orders Index registered 61.5 percent in July, an increase of 5.1 percent compared to June. The index achieved its highest level of performance since September 2018, Fiore said. A New Orders Index above 52.5 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders, he noted.
Of the 18 manufacturing industries, 13 reported growth in new orders and two reported a decline in new orders–textile mills and paper products.
The Production Index increased 4.8 percent to 62.1 percent in July, indicating growth for the second consecutive month. The 16 industries reporting growth in production in July included textile mills.
“Five of the top six industries expanded strongly and none contracted, a marked improvement from June,” Fiore said. “The index achieved its highest level of performance since August 2018, when it registered 63.1 percent.”
An index above 51.7 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures, he noted.
The delivery performance of suppliers to manufacturing organizations was slower in July, as the Supplier Deliveries Index registered 55.8 percent, 1.1 percent lower than June. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.
“Suppliers continue to struggle to deliver, although at a slower rate compared to June,” Fiore said. “Plant interruptions, transportation challenges and continuing difficulties in supplier labor markets are still factors. The Supplier Delivery Index continues to reflect a healthier supply-demand balance compared to spring and early summer.”
Twelve of 18 industries reported slower supplier deliveries in July, led by textile mills.
The Inventories Index fell 3.5 percent to 47 percent in July, after two consecutive months of expansion.
“Inventory levels were impacted by increases in production output and restrained by continuing supplier difficulties,” Fiore said. “Panelists also indicated restraint in increasing inventories due to uncertainty in overall future market demand.”
The ISM Prices Index registered 53.2 percent, up 1.9 percent from June, indicating raw materials prices increased for the second consecutive month.
“Price increases were driven primarily by plastics, lumber, aluminum, copper and petroleum products,” Fiore said. “Rice growth remains at a stable supplier-buyer relationship.”
A Prices Index above 52.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics Producer Price Index for Intermediate Materials, the report noted.
The 10 industries reporting paying increased prices for raw materials in July were led by textile mills. However, the U.S. Department of Agriculture reported U.S. spot cotton prices averaged 56.73 cents per pound for the week ended July 30. The weekly average was down from 58.18 cents per pound the prior week and from 57.75 cents a year earlier.