Economic activity in the manufacturing sector contracted in July for the fifth consecutive month, following a two-month expansion preceded by 26 straight months of contraction, according to the Institute for Supply Management (ISM).
The report was issued by Susan Spence, chair of the ISM manufacturing business survey committee.
“The Manufacturing PMI registered 48 percent in July, a 1-percentage point decrease compared to the 49 percent recorded in June. The overall economy continued in expansion for the 63rd month after one month of contraction in April 2020. (A Manufacturing PMI above 42.3 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index contracted for the sixth month in a row following a three-month period of expansion; the figure of 47.1 percent is 0.7 percentage point higher than the 46.4 percent recorded in June. The July reading of the Production Index (51.4 percent) is 1.1 percentage points higher than June’s figure of 50.3 percent. The Prices Index remained in expansion (or ‘increasing’) territory, registering 64.8 percent, down 4.9 percentage points compared to the reading of 69.7 percent reported in June. The Backlog of Orders Index registered 46.8 percent, up 2.5 percentage points compared to the 44.3 percent recorded in June. The Employment Index registered 43.4 percent, down 1.6 percentage points from June’s figure of 45 percent,” Spence said. “The Supplier Deliveries Index indicated faster delivery performance after seven consecutive months in expansion (or ‘slower’) territory. The reading of 49.3 percent is down 4.9 percentage points from the 54.2 percent recorded in June. (Supplier Deliveries is the only ISM Report On Business index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 48.9 percent, down 0.3 percentage point compared to June’s reading of 49.2 percent.”
“The New Export Orders Index reading of 46.1 percent is 0.2 percentage point lower than the reading of 46.3 percent registered in June. The Imports Index registered 47.6 percent, 0.2 percentage point higher than June’s reading of 47.4 percent. In July, U.S. manufacturing activity contracted at a faster rate, with declines in the Supplier Deliveries and Employment Indexes contributing as the biggest factors in the 1-percentage point loss of the Manufacturing PMI,” Spence said. “The demand indicators improved, with the New Orders and Backlog of Orders indexes contracting at slower rates, while the Customers’ Inventories and New Export Orders indexes contracted at slightly faster rates. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production. Regarding output, the Production Index increased month over month to move further into expansion territory, however; the Employment Index dropped further into contraction as panelists indicated that managing head count is still the norm at their companies, as opposed to hiring. The mixed indicators in output suggest companies still being cautious in their hiring even with an increase in production.
“Finally, inputs (defined as supplier deliveries, inventories, prices and imports), on net, declined further into contraction territory. The Inventories Index moved marginally further into contraction territory after expanding in April, as companies work to reduce or adjust inventory to better align with demand. The Supplier Deliveries Index indicated faster deliveries as supply chain performance improved and sluggish demand continued. Prices continued to increase, but at a slower rate. The Imports Index remained in contraction but moved upward slightly,” Spence said. “Looking at the manufacturing economy, 79 percent of the sector’s gross domestic product (GDP) contracted in July, up from 46 percent in June. Notably, 31 percent of GDP is strongly contracting (registering a composite PMI of 45 percent or lower), up from 25 percent in June. The share of sector GDP with a PMI at or below 45 percent is a good metric to gauge overall manufacturing weakness. Of the six largest manufacturing industries, none expanded in July, compared to four in June,” says Spence.
The seven manufacturing industries reporting growth in July — listed in order — are:
- Apparel, Leather & Allied Products
- Plastics & Rubber Products
- Nonmetallic Mineral Products
- Textile Mills
- Miscellaneous Manufacturing
- Furniture & Related Products
- Primary Metals
The 10 industries reporting contraction in July — in the following order — are:
- Printing & Related Support Activities
- Paper Products
- Chemical Products
- Machinery
- Wood Products
- Fabricated Metal Products
- Computer & Electronic Products
- Transportation Equipment
- Electrical Equipment, Appliances & Components
- Food, Beverage & Tobacco Products
