Economic activity in the manufacturing sector expanded in July for the seventh consecutive month, according to the latest ISM Manufacturing PMI Report. The report was issued by Susan Spence, chair of the Institute for Supply Management (ISM) manufacturing business survey committee.
“The Manufacturing PMI registered 55.6% in July, 2.3 percentage points above the June figure and the highest reading since May 2022 (55.9%),” Spence said. “The overall economy continued in expansion for the 21st month in a row. (A Manufacturing PMI above 47.5%, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index expanded for the seventh consecutive month after four straight readings in contraction, registering 56.7%, up 0.7 percentage point compared to June’s figure of 56%. The July reading of the Production Index (58.5%) is 6.3 percentage points higher than the 52.2% recorded in June and the highest figure since November 2021 (60.5%). The Prices Index remained in expansion (or ‘increasing’ territory), registering 71.1%, a 1.9-percentage point decrease from June’s reading of 73%. The Backlog of Orders Index registered 55%, up 4.5 percentage points compared to the 50.5% recorded in June. The Employment Index reading of 52.8% is up 3.1 percentage points from June’s figure of 49.7%, putting the index in expansion territory for the first time in 33 months.
Spence continued, “The Supplier Deliveries Index indicated slowing performance for the eighth month in a row after one month in ‘faster’ territory. The reading of 58.9% is up 1.5 percentage points from its June reading of 57.4%. (Supplier Deliveries is the only ISM PMI Reports index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 51.2%, down 0.2 percentage point compared to June’s reading of 51.4%. The Customers’ Inventories Index reading of 40.7% is 1.6 percentage points lower compared to the 42.3% recorded in June. The New Export Orders Index returned to expansion territory with a reading of 53%, 4.5 percentage points higher than the 48.5% registered in June. The Imports Index registered 55.7%, 2.8 percentage points higher than June’s reading of 52.9%.”
Spence added, “In July, U.S. manufacturing activity remained in expansion territory, growing at its fastest rate in more than four years. Of the five subindexes that make up the PMI, four grew faster compared to the previous month; the exception was the Inventories Index, which was down just 0.2 percentage point. In July, 38% of the comments were positive and 62% negative, with a 1-to-1.6 ratio of positive to negative sentiment. Pricing volatility was mentioned in 57% of negative comments, the Iran war 43%, increasing lead times 22% and tariffs 18%. In July, three of four demand indicators (the New Orders, Backlog of Orders and New Export Orders indexes) were in expansion, and the Customers’ Inventories Index remained in ‘too low’ territory, contracting at a faster rate. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production.”
Spence continued, “Regarding output, the Production Index expanded for the ninth month in a row, and the Employment Index increased 3.1 percentage points to enter growth territory for the first time in 33 months. Sixty percent of panelists reported their companies are hiring, while 40% indicated that managing head counts remains the norm. Finally, inputs (defined as supplier deliveries, inventories, prices and imports) were mixed, with the Supplier Deliveries Index increasing 1.5 percentage points, the Inventories Index declining 0.2 percentage points but staying in expansion, and Prices Index relief continuing with the third straight month-over month decrease, to 71.1% compared to 73% in June.”
Spence concluded, “Looking at the manufacturing economy, 20% of the sector’s gross domestic product (GDP) contracted in July, compared to 5% in June; however, no share of manufacturing GDP was in strong contraction (defined as a composite PMI of 45% or lower), compared to 3% in June. The share of sector GDP with a PMI at or below 45% is a good metric to gauge overall manufacturing weakness. Of the six largest manufacturing industries, four (Transportation Equipment; Machinery; Computer and Electronic Products; and Food, Beverage and Tobacco Products) expanded in July.”
The 15 manufacturing industries reporting growth in July — listed in order — are: printing and related support activities; apparel, leather and allied products; electrical equipment, appliances and components; primary metals; nonmetallic mineral products; transportation equipment; miscellaneous manufacturing; textile mills; machinery; computer and electronic products; food, beverage and tobacco products; wood products; plastics and rubber products; furniture and related products; and fabricated metal products. The only industry in contraction was chemical products.
