The U.S. manufacturing industry made up for ground lost earlier in the year as one of the nation’s indicators on economic activity rose strongly in July.
The Institute of Supply Management’s index of purchasing managers, the PMI, increased 4.5 percentage points from June’s level to 55.4 percent. A PMI reading above 50 percent indicates that the manufacturing economy is expanding; below 50 percent indicates that it is contracting.
New order and production levels were also up for the month: new orders grew by 6.4 percentage points to 58.3 percent, and the production index surged by 11.6 percentage points to 65 percent. “Production may be skewing things a little as it is higher than one would expect,” said Bradley J. Holcomb, CPSM, CPSD, and chair of the Institute for Supply Management Manufacturing Business Survey Committee. “It’s the highest we’ve seen since March 2004. It’s not sustainable, but it is clearly reflecting a strong level of new orders and manufacturers reaching into a backlog of orders.”
Of the 18 manufacturing industries the ISM tracks, 13 reported growth in July. Particularly strong were the furniture, wood, appliances and computer sectors.
“We’ve been talking for a while about strength in the housing and automotive markets and that demand is still there,” Holcomb said. “What’s new is the computer and electronics sector, which is one of the largest manufacturing segments with a broad base of products. It was nice to see that in positive territory."
Holcomb added that the increase in the PMI and growth in electronics likely is due to pent-up demand. “Industries such as electronics can’t stay down for long,” he said. “People love electronics and computers and even though there is a major transformation going on in the market – from PCs to tablets and smartphones – people are still going to buy electronics products.”
The ISM’s employment index registered 54.4 percent in July, an increase of 5.7 percentage points compared to June’s reading of 48.7 percent. The prices index registered 49 percent, decreasing 3.5 percentage points from June, indicating that overall raw materials prices decreased from last month. That’s unlikely to be a long-term trend, Holcomb said: “Prices will remain in check. I wouldn’t expect to see a windfall in bargain prices of materials.”
The level of imports and exports for the month grew at roughly the same rate. “That shows the global economy is still working and the flow of goods both to and from [the US] is good news,” Holcomb said. “It’s a good balanced report and a positive indicator of things to come.”