Export rebound signals strengthening manufacturing scenario

Logistics managers in the manufacturing sector should welcome a bout of "fairly solid" growth after two lackluster and lethargic years (2015–16), observe economists for IHS Markit.

While noting that the ISM purchasing managers' index (PMI) for June bounced back to 57.8, economist Michael Montgomery says foreign trade is now more likely to be a boost or a marginal drag than the major drag that it had been in the recent past.

“The report's indication that new export orders rebounded to a 59.5 reading in June underscores what is true today that was missing in action for the prior two calendar years,” he says.

Foreign trade, or exports minus imports, in a GDP sense can be a drag on growth when it is really a plus for the health of manufacturing, since many of the raw materials and supplies (like oil, copper, and rubber) are imported, adds Montgomery

“Items like steel are more problematic since the imports compete with domestic producers,” he says. “But even there, the worst aspects of a stronger dollar have already done their greatest damage and are not primed to worsen, with manufacturing turning healthier on a global basis.”

The balance of 2017 is not set to be a "barn burner," but solid growth is in the cards, Montgomery concludes.  The sole significant drag for the remainder of this year is bringing auto inventories on dealer lots back down into line with sales.