First Half of 2014 Closes Strong for Manufacturing

11 July 2014

Manufacturing activity within the U.S. expanded for the 13th consecutive month in June, setting the stage for continuing growth through the second half of 2014.

The June Purchasing Managers’ Index (PMI) – an index tracked by the Institute for Supply Management (ISM) – was down 0.1 percent from May’s level of 55.3 percent but has remained above 50 for more than a year. Anything above 50 indicates economic expansion; anything below 50 indicates contraction.

“We are on a very healthy trend and we have been all year,” said Bradley J. Holcomb, chair of the Institute for Supply Management’s (ISM) Manufacturing Business Survey Committee. Although the June PMI was basically flat with the prior month, the first half of the year is finishing stronger than 2013, Holcomb said. For the first half of 2013, the PMI averaged 53.9 percent, and the second half of the year improved over the first.

“In the first half of 2014, the average has been 54 percent, a full point ahead of last year,” Holcomb said. “I like that trend, I like the position the economy is in, and what our members are telling us on a forward-looking basis.”

In spite of the ongoing unrest in the Middle East, for example, manufacturers in petroleum and coal products are not reporting any price increases or disruption, Holcomb said. In fact, the prices of raw materials overall grew at a slower rate in June, registering 58 percent, down 2 percentage points from May. Overall, many industry segments, including computer and electronic products, report demand has improved from the prior month.

The new orders index registered 58.9 percent, an increase of 2 percentage points from the 56.9percent reading in May, indicating growth in new orders for the 13th consecutive month. The ISM’s production index registered 60 percent, 1 percentage point below the May reading of 61 percent. Employment grew for the 12th consecutive month, registering 52.8 percent –the same level of growth as reported in May. Inventories of raw materials remained at 53 percent, the same reading as reported in both May and April.

The past relationship between the PMIand the overall economyindicates that the average PMIfor January through June (54.0 percent) corresponds to a 3.6 percent increase in real gross domestic product (GDP) on an annualized basis, according to Holcomb. If the PMI for June (55.3 percent) is annualized, it corresponds to a 4.0 percent increase in real GDP annually.

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