With textile mills, and apparel and leather production showing strength, U.S. manufacturing got back on track in June, the country’s supply executives said in the latest Manufacturing ISM “Report On Business.”
“The June PMI (Purchasing Manager’s Index) registered 52.6 percent, up 9.5 percentage points from the May reading of 43.1 percent,” Timothy R. Fiore, chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee, said. “This figure indicates expansion in the overall economy for the second straight month after April’s contraction, which ended a period of 131 consecutive months of growth. June signifies manufacturing entering an expected expansion cycle after the disruption caused by the coronavirus (COVID-19) pandemic.”
A PMI reading above 50 percent indicates that the manufacturing economy is generally expanding, while a reading below 50 percent indicates that it is generally contracting, the report noted.
Fiore said the manufacturing sector is reversing the heavy contraction of April, with the PMI increasing month-over-month at a rate not seen since August 1980, with several other indexes also posting unprecedented gains. Demand expanded, with the New Orders Index showing solid growth, the Customers’ Inventories Index returning to a level considered a positive for future production and the Backlog of Orders Index softening, although still contracting, he noted.
Consumption, as measured by the Production and Employment indexes, contributed positively to the PMI calculation, with most companies’ employees returning to work in June. Inputs weakened, due to supplier delivery issues abating and import levels improving, while inventory levels reached parity with supply and demand, the report showed.
“As predicted, the growth cycle has returned after three straight months of COVID-19 disruptions,” Fiore said. “Demand, consumption and inputs are reaching parity and are positioned for a demand-driven expansion cycle as we enter the second half of the year.”
The manufacturing sector grew after three consecutive months of contraction. Of the 18 manufacturing industries, the 13 that reported growth in June included textile mills, and apparel, leather and allied products.
“The past relationship between the PMI and the overall economy indicates that the PMI for June corresponds to a 2.9 percent increase in real gross domestic product (GDP) on an annualized basis,” Fiore said.
The ISM New Orders Index registered 56.4 percent in June, an increase of 24.6 percent compared to the 31.8 percent reported in May. This is the index’s largest month-over-month increase since records began in January 1948. Of the 18 manufacturing industries, the 11 that reported growth in new orders in June were topped by textile mills.
The Production Index registered 57.3 percent in June, signaling that production grew after contracting for three straight months. The increase of 24.1 percentage points is the largest since August 1952, when the index increased 46.8 percentage points. The 13 industries reporting growth in production during the month were also led by textile mills.
The delivery performance of suppliers to manufacturing organizations was slower in June, as the Supplier Deliveries Index registered 56.9 percent. This is 11.1 percentage points lower than May and the largest month-over-month decline since a drop of 11.9 percentage points in May 1979.
“Suppliers continue to struggle to deliver, although at a slower rate compared to May,” Fiore said. “Plant shutdowns, transportation challenges and continuing difficulties in importing parts and components continue to be factors, but to lesser degrees.”
The Inventories Index registered 50.5 percent in June, 0.1 percent higher than May. Inventories expanded for a second straight month after 11 consecutive months of index contraction.
The nine industries reporting higher inventories in June were topped by apparel, leather and allied products, and also included textile mills.
The ISM Prices Index registered 51.3 percent, 10.5 percentage points higher than the May reading of 40.8 percent, indicating raw materials prices increased after four consecutive months of declines. The report noted that a Prices Index above 52.5 percent is generally consistent with an increase in the Bureau of Labor Statistics Producer Price Index for Intermediate Materials.The eight industries reporting paying increased prices for raw materials in June were led by apparel, leather and allied products.