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U.S. Manufacturing: New Orders and Employment up in July

01 August 2014

Amid a spate of generally positive economic news for the U.S. economy, domestic manufacturing expanded for the 14th month in a row in July. The nation’s leading manufacturing index, the Institute for Supply Management’s PMI, registered 57.1 percent in July, a 1.8 percent increase from the prior month. More importantly, new orders increased by 4.5 percentage points to reach 63.4 percent.

“It’s overall a great report and is a continuation of a solid trend for the year,” said Bradley J. Holcomb, chair of the Institute for Supply Management’s Manufacturing Business Survey Committee. Seventeen of the 18 manufacturing segments tracked by the ISM reported growth.

Any number above 50 indicates expansion in manufacturing; any number below 50 indicates contraction.

Although not an historic increase, new orders is nonetheless a strong number, Holcomb said. Employment also grew significantly in July to 58.2 percent, an increase of 5.4 percentage points over the June reading of 52.8 percent. These are not seasonal jobs, Holcomb explained, as seasonality is stripped out of the ISM data. “Manufacturers are hiring people – filling positions – and this is strongest number we’ve seen since June 2011,” he said. “It’s consistent with the job growth we’ve seen out of the government this morning.”

Although inventories decreased in July -- inventories of raw materials registered 48.5 percent, a decrease of 4.5 percentage points from the June reading of 53 percent -- levels are consistent with an increase in production. The production index registered 61.2 percent, 1.2 percentage points above the June reading of 60 percent.

Respondents to the ISM’s monthly survey did express some concern about global politics – a respondent in miscellaneous manufacturing said Russia’s demand for medical devices from the U.S. has dropped by 40 percent. Imports were down 5 percentage points in July to 52 percent. “That’s a number worth watching,” Holcomb said. “It is still in growth mode, and there is no direct indication it’s tied to geopolitics. But it is significant in that imports haven’t dropped by five points since October 2011.” They bounced back two months later, he added. Prices were up nominally in July – by 1.5 percent to reach 59.5 percent – but fewer commodities were in short supply in July than in the prior month. “Some of those items have persisted – such as metals, lumber and nickel – but that’s not a big list and not of general concern at this point,” Holcomb said.

As a side note, Holcomb added, the U.S. GDP is expected to grow 4 percent for the second quarter of the year. The PMI for the first half of the year has averaged 55.2 percent, which reflects GDP growth of 4 percent exactly.

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