In line with regional surveys released earlier in the week, the Institute for Supply Management (ISM) released its Purchasing Managers Index (PMI) for June, which rose from 53.5 to 55.3. This marked the 23rd consecutive month of growth for the manufacturing sector, but most importantly, it provides a huge psychological boost to the industry and the economy following May’s nearly 7-point decline. Last month’s fall in the PMI, spurring on weaknesses in new orders and output, led many commentators to downgrade their economic expectations for the year.
Yet, today’s news is a sign that manufacturing weaknesses in March, April and May are beginning to dissipate. As we saw in yesterday’s strong rebound in manufacturing in the Midwest, the national figures are beginning to recover as well. The indices for new orders (up from 51.0 to 51.6), production (up from 54.0 to 54.5), employment (up from 58.2 to 59.9) and inventories (up from 48.7 to 54.1) all point to a sector that is growing faster than in May.
Moreover, pricing pressures which have plagued the industry for much of this year are easing somewhat, with the index for prices down from 76.5 to 68.0. While this suggests that prices are growing at a slower rate than before, inflation remains a major concern, as evidenced by the respondent comments.
The survey does provide some interesting news on trade, with the index for new export orders falling from 55.0 to 53.5. This was the third month in a row that the measure has fallen. However, the gap between export and import orders has widened, which should be positive for our trade balance.
Overall, these numbers are positive and a sign that the manufacturing sector has turned around somewhat from a weak spring. I believe that manufacturers will return to seeing strong growth in the second half of this year – particularly in the durable goods sector – and today’s report is consistent with that view.
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