Manufacturing Activity Expands at a Slower Pace in July

By Robert Hughes

The manufacturing sector’s Purchasing Managers’ Index registered a 56.3 reading in July, down from 57.8 in June. The PMI and most of the components remain at solidly favorable levels despite small declines in the latest month.

For this index, 50 is neutral, with readings above 50 suggesting expansion in manufacturing and readings below 50 suggesting contraction. Typically, the PMI ranges between 45 and 65. Historically, readings above 43.3 have suggested expansion of the overall economy. The July result is the 11th consecutive reading above 50.

Among the key components of the PMI, the new-orders index came in at 60.4, down from 63.5 in June. July was the 11th month of readings above 50. A new-orders index above 60 is strong by historical measures, and the July result marks the sixth month in the past eight that new orders have been above 60. The new-export-orders index has been above 50 for 17 consecutive months, but fell to 57.9 in July from 59.5 in June.

The production index was 60.6 in July, down from 62.4 in June. Historically, readings above 51.4 are consistent with growth in the industrial-production index from the Fed. For the month of July, 14 industries reported growth while just 1, textile mills, reported a decrease in production.

The employment index fell to 55.2 in July, down from 57.2 in June. The slightly lower but still favorable reading suggests employment in manufacturing likely increased in July. The Bureau of Labor Statistics will be releasing its own employment report for July on Friday, August 4.

The one component that raises some concern is the price index. It rose 7 points to a reading of 62 in July. July was the 17th month in a row that the price index has been above 50. This result suggests manufacturers are experiencing materials-costs increases.

Supplier deliveries, a measure of delivery times for suppliers to manufacturers, came in at 55.4, down from 57.0 in June. It suggests suppliers are falling farther behind in delivering supplies to manufacturers but the slippage has slowed a bit from the prior month. According to the survey, labor recruitment, retention, and stability are the primary reasons suppliers are struggling to keep up with demand.

Today’s report from the Institute of Supply Management suggests the manufacturing sector continued to grow in July, though the pace eased a bit. That performance is in line with other recent data that point to ongoing expansion for the overall economy, though the pace of growth remains moderate by historical measures.

 

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.