June 2018 Manufacturing ISM Report on Business: PMI at 60.2

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Economic activity in the manufacturing sector expanded in June, and the overall economy grew for the 110th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee: “The June PMI registered 60.2%, an increase of 1.5% points from the May reading of 58.7%. The New Orders Index registered 63.5%, a decrease of 0.2% point from the May reading of 63.7%. The Production Index registered 62.3%, a 0.8% point increase compared to the May reading of 61.5%. The Employment Index registered 56%, a decrease of 0.3% point from the May reading of 56.3%. The Supplier Deliveries Index registered 68.2%, a 6.2% point increase from the May reading of 62%. The Inventories Index registered 50.8%, an increase of 0.6% point from the May reading of 50.2%. The Prices Index registered 76.8% in June, a 2.7% point decrease from the May reading of 79.5%, indicating higher raw materials prices for the 28th consecutive month.

“Comments from the panel reflect continued expanding business strength. Demand remains strong, with the New Orders Index at 60% or above for the 14th straight month, and the Customers’ Inventories Index remaining low. The Backlog of Orders Index continued to expand, reading at 60% or higher for the third consecutive month. Consumption, described as production and employment, continues to expand in spite of labor, skill and material shortages. Inputs, expressed as supplier deliveries, inventories and imports, had expansion increases, due primarily to negative supply chain issues. Lead-time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue. Export orders expanded at higher rates. Price pressure remains strong, but the index saw its first expansion softening since November 2017. Demand remains robust, but the nation’s employment resources and supply chains continue to struggle. Respondents are overwhelmingly concerned about how tariff related activity is and will continue to affect their business,” says Fiore.

June Manufacturing Index Summaries

PMI

Manufacturing expanded in June as the PMI registered 60.2%, an increase of 1.5% points from the May reading of 58.7%. “This indicates strong growth in manufacturing for the 22nd consecutive month, led by continued expansion in new orders, production and employment. The PMI reached its highest level since February 2018, when it reached 60.8 points. However, inventories continue to struggle to maintain expansion levels as a result of supplier deliveries slowing further,” says Fiore. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

New Orders 

ISM’s New Orders Index registered 63.5% in June, which is a decrease of 0.2% point when compared to the 63.7% reported for May, indicating growth in new orders for the 30th consecutive month. “New orders expansion continued at high levels, with the index at or above 60% for the 14th straight month and the rolling three month average gaining 0.5 point. Customer inventories remain too low, and the Backlog of Orders Index is at 60% of higher for the third consecutive month,” says Fiore. A New Orders Index above 52.4%, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

Production

ISM’s Production Index registered 62.3% in June, which is an increase of 0.8% point when compared to the 61.5% reported for May, indicating growth in production for the 22nd consecutive month. “Production expansion continues, with the index recording the second straight month of expansion growth at 60% or above. Labor constraints and, more significantly, supply chain disruptions continue to limit full production potential,” says Fiore. An index above 51.5%, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

Employment

ISM’s Employment Index registered 56% in June, a decrease of 0.3% point when compared to the May reading of 56.3%. This indicates growth in employment in June for the 21st consecutive month. “Employment maintained a modestly strong level of expansion and supported production growth during the month. Respondents noted labor market issues as a constraint to their production and their suppliers’ production capacity,” says Fiore. An Employment Index above 50.8%, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was markedly slower in June, as the Supplier Deliveries Index registered 68.2%. This is 6.2% points higher than the 62% reported for May. “This is the 21st straight month of slowing supplier deliveries that continue to constrain production growth and inventory expansion. Lead-time extensions for production materials, transportation delays, and ongoing uncertainty in the steel and aluminum markets continue to restrict production output. The index recorded its highest reading since May 2004, when it reached 68.3%,” says Fiore. A reading below 50% indicates faster deliveries, while a reading above 50% indicates slower deliveries.