ISM: Manufacturing activity expanded strongly in July but eased from June’s 34-month high

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By Chad Moutray, Cheif Economist for National Association of Manufacturers

The Institute for Supply Management (ISM) said that manufacturing activity continued to expand strongly in July, even as it pulled back from nearly a three-year high in June. The ISM Manufacturing Purchasing Managers’ Index (PMI) decreased from 57.8 in June, its strongest reading since August 2014, to 56.3 in July. Despite some easing in many of the key measures in this survey, the underlying data reflect healthy expansions in demand and output, with manufacturers mostly upbeat in their outlook. The sample comments tend to echo these sentiments, noting strong sales, exports and profits. In addition, better growth in the sector has exacerbated workforce challenges, with one respondent suggesting, “Labor shortages are pretty universal, leading to longer lead times through the supply chain.”

As noted, many of the underlying indices decelerated somewhat in July. This included new orders (down from 63.5 to 60.4), production (down from 62.4 to 60.6), employment (down from 57.2 to 55.2) and exports (down from 59.5 to 57.5). The index for new orders has now exceeded 60 – which would indicate more-robust growth – in six of the past eight months, and it has reflected expansions in activity for 11 straight months.

There were two other highlights worth mentioning. First, prices for raw materials (up from 55.0 to 62.0) accelerated in July at its fastest pace since April. While we have seen decelerating pricing pressures over much of the spring, this pickup reflects a rebound in some commodity costs. Meanwhile, inventories (up from 49.0 to 50.0) stabilized in July after falling in to contraction briefly in June. Nonetheless, even with some expansions in April and May, stockpiles remain quite low. This should necessitate healthy gains in production moving forward to meet additional demand.