ISM: Manufacturing Activity Jumped Sharply in July

By August 1, 2013Economy

The Institute for Supply Management (ISM) reported a sharp increase in activity in July. After a brief contraction in May (49.0), the purchasing managers’ index (PMI) rose to 50.9 in June and 55.4 in July. This gain was larger than expected, and it is a sign that manufacturing sales and production have picked up in the summer, recovering somewhat from the weaknesses seen in the spring months.

As a sign of this progress, the index for production jumped from 53.4 in June to 65.0 in July. This indicates a strong uptick in output. Note that we have been saying for a while that inventory stockpiles remain very low, and in July, they continued to decline (47.0). As such, increases in sales should necessitate higher production.

Indeed, the pace of new orders also rose, up from 51.9 to 58.3. This bodes well for growth moving forward. One slight downside was the international sales arena, with the growth in export sales easing slightly (down from 54.5 to 53.5). The good news on the export front, though, is that this data still indicates modest gains in exports. Meanwhile, imports grew at an even faster pace, up from 56.0 to 57.5.

Hiring appears to have accelerated a bit, as well. The index for employment shifted from a net decline in June (48.7) to a modest increase in July (54.4). With manufacturers shedding workers in each of the past four months, this might indicate positive gains in employment ahead. We will get the July jobs numbers tomorrow.

Despite the positive figures, the sample comments were mixed. One respondent said, “Business conditions remain stable, possibly improving somewhat in future months.” This statement is consistent with the upbeat PMI data, and yet,j others noted sales challenges. A machinery manufacturer referred to flat sales growth in that sector, and a transportation producer noted weaknesses in export markets.

Overall, the report is overwhelmingly positive for manufacturers, where softness in the market has been disappointing for much of the past year. Businesses tend to be cautiously optimistic about the second half of 2013, and the data help to support that view. With that said, weaknesses continue to persist and growth in the sector is still below what we would like to see. It will be important for policymakers to continue to explore pro-growth measures that will allow the manufacturing sector to build on these gains and to flourish. For now, though, it is safe to say that these PMI figures are getting off to a good start, as we begin the third quarter.

Chad Moutray is the chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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