July 2, 2018

June 2018 ISM Manufacturing Index: 60.2 Percent, Up from 58.7 Percent in May

Filed under: Economy,Taxes & Government — Tom @ 10:53 pm

Missed this because of other distractions earlier today, but here goes.

From the Institute for Supply Management (bolds and most paragraph breaks are mine):

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 June PMI® registered 60.2 percent, an increase of 1.5 percentage points from the May reading of 58.7 percent.

The New Orders Index registered 63.5 percent, a decrease of 0.2 percentage point from the May reading of 63.7 percent. The Production Index registered 62.3 percent, a 0.8 percentage point increase compared to the May reading of 61.5 percent. The Employment Index registered 56 percent, a decrease of 0.3 percentage point from the May reading of 56.3 percent.

The Supplier Deliveries Index registered 68.2 percent, a 6.2 percentage point increase from the May reading of 62 percent. The Inventories Index registered 50.8 percent, an increase of 0.6 percentage point from the May reading of 50.2 percent.

The Prices Index registered 76.8 percent in June, a 2.7 percentage point decrease from the May reading of 79.5 percent, 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 percent 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 percent of 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

Of the 18 manufacturing industries, 17 reported growth in June, in the following order: Textile Mills; Wood Products; Nonmetallic Mineral Products; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Paper Products; Transportation Equipment; Furniture & Related Products; Machinery; Primary Metals; Miscellaneous Manufacturing; Chemical Products; Petroleum & Coal Products; and Plastics & Rubber Products. No industry reported a decrease in June compared to May.

The problems cited are nice-to-have problems, considering what manufacturers faced from 2008 to 2016.

That said, Backlog softened a bit to a more manageable 60.1 from and overheated 63.5 in May. If backlogs are too high, it means that a lot of customers probably aren’t getting their orders filled when they need them. (When was the last time anyone worried about backlogs being too high?)

Low-60s readings are okay for Production and New Orders; mid-60s get problematic in terms of potential overheating. The concerns about tariffs are valid, and President Trump is going to have to prove he’s the great negotiator he claims to be to avoid problems here (there are some signs that he’s succeeding in making headway this regard, though you have to dig deep into the blogosphere to know that).

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UPDATE: MarkIt’s Manufacturing PMI, which the Associated Press is suddenly interested in (probably because its number is lower and its “data signalled a slightly softer rate of growth across the U.S. manufacturing sector”), came in at 55.4 percent, down from 56.4 percent in May, ending what was still the best quarter since 3Q14. If Markit stays in the mid-50s, manufacturing will be going well.

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