ISM June manufacturing report shows nice rebound from May

Coming off somewhat of a “down” month in May, the June Manufacturing Report on Business from the Institute for Supply Management (ISM) showed that manufacturing is indeed still on solid ground.

The ISM reported that the index it uses to measure the manufacturing sector—known as the PMI—was 55.3 in June, up 1.8 percent from May’s 53.5. May marked the first month in 2011 that the PMI did not exceed 60. But even though the last two months were below 60, manufacturing experts said it was likely the PMI would head down a little bit.

Any PMI reading 50 or higher represents economic growth. And despite the sequential decline, June is the 25th consecutive month economic growth has occurred in the overall economy and the 23d consecutive month economic activity in the manufacturing sector has occurred, according to the report.

New orders were up 0.6 percent at 51.6, and production saw a 0.5 percent gain at 54.5. Employment also was up at 59.9 for a 1.7 percent increase.

“The index at 55.3 is positive and welcome news,” said Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, in an interview. “A number of people were predicting for a lower reading than that. This recovery in manufacturing has been sustained for 23 months now through thick and thin, and this is another indication of that positive trend.”

The strong employment reading in this report, said Holcomb, represents a very strong optimism and shows that manufacturers are willing to take on more staff and serves as a strong leading indicator of good things to come over the next two months.

Inventories also had a strong month with a 5.4 percent gain to come in at 54.1, while customer inventories were up 7.5 percent at 47.0.

This increase continues and “up and down ride” over the last five months or so, noted Holcomb, and remains in an acceptable range.

“The managing inventories—raw materials, commodities, and inputs to manufacturing—is occurring at an acceptable range and shows good inventory management discipline,” explained Holcomb. “I am not particularly concerned about inventory readings being up over 50 at this point, because of the fluctuation.”

Prices were down 8.5 percent in June, following a 9 percent decline in May for a cumulative 17.5 percent dip over the last two months.

Holcomb labeled this development as very good news.

“The drop-off in fuel has a lot to do with it,” he said. “Gas, oil and diesel helps directly with transportation but it also impacts other things. This is clearly welcome, but there is continuing concern about inflation and prices, with people looking for more relief going forward.”

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