June Manufacturing ISM Report On Business; PMI at 51.7%;

Estimated reading time: 4 minutes

The June PMI registered 51.7%, a decrease of 0.4percentage point from the May reading of 52.1%. The New Orders Index registered 50%, a decrease of 2.7 percentage points from the May reading of 52.7%. The Production Index registered 54.1%, a 2.8-percentage point increase compared to the May reading of 51.3%. The Employment Index registered 54.5%, an increase of 0.8percentage point from the May reading of 53.7%. The Supplier Deliveries Index registered 50.7%, a 1.3-percentage point decrease from the May reading of 52%. The Inventories Index registered 49.1%, a decrease of 1.8percentage points from the May reading of 50.9%. The Prices Index registered 47.9%, a 5.3-percentage point decrease from the May reading of 53.2%.

"Comments from the panel reflect continued expanding business strength, but at soft levels; June was the third straight month with slowing PMI expansion. Demand expansion ended, with the New Orders Index recording zero expansion, the Customers' Inventories Index remaining at a too-low level, and the Backlog of Orders Index contracting for the second straight month. New export orders remain weak. Consumption (measured by the Production and Employment indexes) continued to expand, resulting in a combined increase of 3.6 percentage points. Inputs — expressed as supplier deliveries, inventories and imports — were lower this month, due to inventory contraction and suppliers continuing to deliver faster, resulting in a combined 3.1-percentage point reduction in the Supplier Deliveries and Inventories indexes. Imports registered zero expansion. Overall, inputs indicate (1) supply chains are responding faster and (2) supply managers are again closely watching inventories. Prices contracted for the first time since February.

"Respondents expressed concern about U.S.-China trade turbulence, potential Mexico trade actions and the global economy. Overall, sentiment this month is evenly mixed," says Fiore.

June 2019 Manufacturing Index Summaries

PMI

Manufacturing expanded in June, as the PMI registered 51.7%, a decrease of 0.4percentage point from the May reading of 52.1%. This is the lowest reading since October 2016, when the index registered 51.7%. "This indicates growth in manufacturing for the 34th consecutive month. The PMI® continued a period of expansion softening that began in September 2018. Softening this month was primarily due to demand and inputs — new orders, supplier deliveries and inventories. Four of the six big industries expanded (up from three the previous month), but at lower rates," says Fiore. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

A PMI above 42.9%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the June PMI indicates growth for the 122nd consecutive month in the overall economy and the 34th straight month of growth in the manufacturing sector. "The past relationship between the PMI and the overall economy indicates that the PMI for June (51.7%) corresponds to a 2.6-percent increase in real gross domestic product (GDP) on an annualized basis," says Fiore.

New Orders

ISM's New Orders Index registered 50% in June, which is a decrease of 2.7percentage points when compared to the 52.7% reported for May, indicating that new orders remained unchanged after increasing for 41 consecutive months. "Customer demand did not expand for the first time since December 2015, when the index registered 49.6%. Three of the top six industry sectors expanded, two contracted and one was unchanged," says Fiore. A New Orders Index above 52.5%, 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 54.1% in June, which is an increase of 2.8percentage points when compared to the 51.3% reported for May, indicating growth in production for the 34th consecutive month. "Production expansion continued in June, and at a stronger pace compared to May. The index recorded the strongest gain of all PMI subindexes. Production output was able to improve customer-inventory positions and reduce backlog orders," says Fiore. An index above 51.7%, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

Employment

ISM's Employment Index registered 54.5% in June, an increase of 0.8percentage point when compared to the May reading of 53.7%. This indicates growth in employment in June for the 33rd consecutive month. "Employment continued to expand, and at marginally higher levels compared to May. Comments were predominantly 'pro hire' in support of capacity expansion, replacing retiring workers and adding summer help. Few comments were in support of hiring freezes and head-count reductions," 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.

About Institute for Supply Management

Institute for Supply Management (ISM) serves supply management professionals in more than 90 countries. Its 50,000 members around the world manage about US$1 trillion in corporate and government supply chain procurement annually. Founded in 1915 as the first supply management institute in the world, ISM is committed to advancing the practice of supply management to drive value and competitive advantage for its members, contributing to a prosperous and sustainable world. ISM leads the profession through the ISM Report On Business, its highly regarded certification programs and the ISM Mastery Model®. This report has been issued by the association since 1931, except for a four-year interruption during World War II.