The ISM Manufacturing Index for June exceeded market expectations and reached 52.6 after 43.1 in May. While conditions for manufacturing are far from booming, this is the highest reading since 53.4 in April 2019. Some of the firming can be attributed to a rebound after unusually slack orders and production in April and May. It would not be a surprise if the index gave back some of the activity when the July numbers are reported. Nonetheless, it offers promise that the worst of the COVID-19 pandemic impacts on the factory sector are past and that conditions will be more expansionary – if mild – in the near future.
The index got most of its lift from a surge in the new orders component to 56.4 in June after 31.8 in May. Order backlogs – which are not a component – remained in contraction at 45.3 after 38.2. It will take a little time for sufficient orders to accumulate that production will not meet them quickly. Export orders also remained slow at 47.6 in June after 39.5 in May. The improvement is welcome but will take some time to actually reach expansionary levels with weak global demand and a softening in the US dollar relative to other currencies. The index for imports was up to 48.8 in June after 41.3 in May as efforts to replenish goods were a little faster. In any case, the production index jumped to 57.3 after 33.2 in the prior month as activity geared up again.
However, it is notable that hiring is only less slow, not gaining. The employment index rose to 42.1 in June after 32.1 in May and is consistent with recessionary conditions.
Delivery times remained fairly wide as supply chains remained disrupted by shortages and problems moving goods with various measures to stem the spread of COVID-19. The delivery times index was down to 56.9 in June after 68.0 in May and continued to move toward more normal speeds.
The inventories index remained close to neutral at 50.5 in June, virtually unchanged from 50.4 in May. Businesses are either not able to restock or cautious about doing so until uncertainty subsides.
The index for prices paid returned to expansionary territory in June at 51.3 from 40.8 in May. In part this is due to rising energy costs, but there are other goods in short supply that are pushing prices up again in spite of the recession.
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