July Manufacturing ISM Report on Business: PMI at 51.2%

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Economic activity in the manufacturing sector expanded in July, and the overall economy grew for the 123rd consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business.

July 2019 Manufacturing Index Summaries

PMI

Manufacturing expanded in July, as the PMI registered 51.2%, a decrease of 0.5 percentage point from the June reading of 51.7%. This is the lowest reading since August 2016, when the index registered 49.6%. "This indicates growth in manufacturing for the 35th consecutive month. The PMI® continued a period of expansion softening, with four straight months of expansion decline. Softening this month was primarily due to slower growth in demand and consumption, indicated by the New Orders, Production and Employment indexes. Four of the six big industries expanded, as was the case in June, but at lower levels," 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 July PMI® indicates growth for the 123rd consecutive month in the overall economy and the 35th straight month of growth in the manufacturing sector. "The past relationship between the PMI and the overall economy indicates that the PMI for July (51.2%) corresponds to a 2.5% increase in real gross domestic product (GDP) on an annualized basis," says Fiore.

New Orders

ISM's New Orders Index registered 50.8%in July, an increase of 0.8 percentage point when compared to the 50% reported for June. This indicates that new orders grew after being unchanged for one month. "Customer demand expanded slightly in July following one month of no expansion. Three of the top six industry sectors expanded, and three contracted during the period," 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 50.8%in July, which is a decrease of 3.3 percentage points when compared to the 54.1%reported for June, indicating growth in production for the 35th consecutive month. "Production expansion continued in July, at a weaker pace compared to June. For the second straight month, 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 51.7% in July, a decrease of 2.8 percentage points when compared to the June reading of 54.5%. This indicates growth in employment in July for the 34th consecutive month. "Employment continued to expand slightly compared to June. Comments were generally 'pro hire,' but there is a growing reluctance to replace unplanned exits and retirements," 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 slowed in July, as the Supplier Deliveries Index registered 53.3%. This is 2.6 percentage points higher than the 50.7%reported for June. "This is the 41st straight month of slowing supplier deliveries, in contrast with the reduction in production material lead times noted in the Buying Policy section of this report," says Fiore. A reading below 50% indicates faster deliveries, while a reading above 50% indicates slower deliveries.

Inventories

The Inventories Index registered 49.5% in July, an increase of 0.4 percentage point from the 49.1% reported for June. "The index contracted for the second straight month. Inventories were again depleted relative to production, due to production-output strength. Many respondents noted that they continue to watch inventories closely to align with softening demand," says Fiore. An Inventories Index greater than 44.3%, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

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.