– July 1, 2019

The Manufacturing Purchasing Managers Index from the Institute for Supply Management registered a 51.7 percent reading in June, down 0.4 points from 52.1 in May. June was the third straight monthly decline and the lowest reading since October 2016 (see top chart). June was the 34th month in a row above the neutral 50 level and the 122nd above the 42.9 percent threshold consistent with expansion in the overall economy. Comments from purchasing executives highlight policy concerns including trade wars with China and Mexico, rising tariffs, and uneven global growth as significant issues.

Among the key components of the Purchasing Managers Index, the New Orders Index fell 2.7 points to a neutral 50, the lowest reading since December 2015. The result ended a run of 41 consecutive months with readings above 50 (see top chart). New export orders fell, losing 0.5 points to 50.5. The backlog of unfilled orders gained 0.2 points but remained below 50 for the second consecutive month, coming in at 47.4.

The production index was at 54.1 percent in June, up from 51.3 in May. June marks the 34th month in a row above 50 (see bottom chart). Historically, readings above 51.7 are consistent with growth in the industrial-production index from the Federal Reserve. In June, 13 industries surveyed reported growth while 5 reported a decrease in production.

The employment index rose to 54.5 percent in June, up from 53.7 in May (see bottom chart). The result suggests employment in manufacturing likely increased in June. The Bureau of Labor Statistics’ Employment Situation report for June is due out on Friday, July 5. Consensus expectations are for 162,000 new nonfarm-payroll jobs but no new jobs in manufacturing. The disappointing May report showed 75,000 new jobs overall and 3,000 new manufacturing jobs.

Supplier deliveries, a measure of delivery times from suppliers to manufacturers, came in at 50.7, down slightly from 52.0 in May. June was the 40th consecutive month above 50, and the results suggest suppliers delivering to manufacturers are still falling behind but at a slower pace compared to the previous month.

The prices index eased again, falling 5.3 points to 47.9 in June from 53.2 in May. The index has been close to the neutral 50 level since January after being as high as 79.5 in May 2018. These results suggest manufacturers are experiencing much less materials-costs pressure recently, consistent with the generally weaker economy in recent months. Some input-cost pressures may still exist because of higher tariffs.

Customer inventories in June are still considered too low, with the index coming in at 44.6 (index results below 50 indicate customers’ inventories are too low). The index has been below 50 for 33 consecutive months, though it is approaching the desired level.

Today’s report from the Institute for Supply Management suggests the manufacturing sector continued to grow in June but at a very weak pace.

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.
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