Economic activity in the manufacturing sector contracted in June for the third consecutive month and the 19th time in the last 20 months, according to the latest Manufacturing ISM Report On Business.
The report was issued by Timothy R. Fiore, chair of the Institute for Supply Management (ISM) manufacturing business survey committee.
“The manufacturing PMI registered 48.5% in June, down 0.2 percentage point from the 48.7% recorded in May. The overall economy continued in expansion for the 50th month after one month of contraction in April 2020. (A manufacturing PMI above 42.5%, over a period of time, generally indicates an expansion of the overall economy.),” Fiore said. “The new orders index remained in contraction territory, registering 49.3%, 3.9 percentage points higher than the 45.4% recorded in May. The June reading of the production index (48.5%) is 1.7 percentage points lower than May’s figure of 50.2%. The prices index registered 52.1%, down 4.9 percentage points compared to the reading of 57% in May. The backlog of orders index registered 41.7%, down 0.7 percentage point compared to the 42.4% recorded in May. The employment index registered 49.3%, down 1.8 percentage points from May’s figure of 51.1%.”
“The supplier deliveries index remained in ‘faster’ territory, registering 49.8%, 0.9 percentage point higher than the 48.9% recorded in May. (Supplier deliveries is the only ISM Report On Business index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.),” Fiore said. “The inventories index registered 45.4%, down 2.5 percentage points compared to May’s reading of 47.9%. The new export orders index reading of 48.8% is 1.8 percentage points lower than the 50.6% registered in May. The imports index dropped into contraction territory, registering 48.5%, 2.6 percentage point lower than the 51.1% reported in May.”
“U.S. manufacturing activity continued in contraction at the close of the second quarter. Demand was weak again, output declined and inputs stayed accommodative. Demand slowing was reflected by the (1) new orders index improving to marginal contraction, (2) new export orders index returning to contraction, (3) backlog of orders index dropping into stronger contraction territory, and (4) customers’ inventories index moving into the low side of the ‘just right’ range, neutral for future production,” Fiore said. “Output (measured by the production and employment indexes) declined compared to May, with a combined 3.5-percentage point downward impact on the manufacturing PMI calculation. Panelists’ companies reduced production levels month over month as head count reductions continued in June. Inputs — defined as supplier deliveries, inventories, prices and imports — continued to accommodate future demand growth. The prices index eased but remained in expansion (or ‘increasing’) territory; the index registered its second month of cooling increases.”
“Demand remains subdued, as companies demonstrate an unwillingness to invest in capital and inventory due to current monetary policy and other conditions. Production execution was down compared to the previous month, likely causing revenue declines, putting pressure on profitability,” Fiore said. “Suppliers continue to have capacity, with lead times improving and shortages not as severe. 62% of manufacturing gross domestic product (GDP) contracted in June, up from 55% in May. More concerning is the share of sector GDP registering a composite PMI calculation at or below 45% — a good barometer of overall manufacturing weakness — was 14% in June, 10 percentage points higher than the 4% reported in May.”
The eight manufacturing industries reporting growth in June — in order — are:
- Printing and related support activities
- Petroleum and coal products
- Primary metals
- Furniture and related products
- Paper products
- Chemical products
- Miscellaneous manufacturing
- Nonmetallic Mineral Products
The nine industries reporting contraction in June — in the following order — are:
- Textile mills
- Machinery
- Fabricated metal products
- Wood products
- Transportation equipment
- Plastics and rubber products
- Food, beverage and tobacco products
- Electrical equipment
- Appliances and components
- Computer and electronic products
