July 6, 2017 Reading Time: 2 minutes

The latest Manufacturing Report on Business and Non-Manufacturing Report on Business from the Institute for Supply Management suggest economic activity generally improved in June. The Manufacturing Purchasing Managers Index, a composite index for overall activity in the manufacturing sector, rose to 57.8 in June from 54.9 in May. For these measures, 50 is neutral. The PMI has been above 50 for 10 consecutive months.

Among the key components, the new-orders index rose to 63.5 in June, a gain of 4 points compared to May, while the production index rose to 62.4 from 57.1 in May. Like the PMI, new orders and production have been above 50 for 10 consecutive months. The new-orders index was helped by a 2-point increase in new export orders, which rose to 59.5 from 57.5.

Faster gains in new orders relative to production helped push the backlog of orders up to 57.0 from 55.0. In addition, supplier deliveries slowed in June, a result consistent with stronger economic activity, and the inventories index fell below 50, following two months of rising inventories.

Employment grew faster in the manufacturing sector, as the index rose to 57.2 from 53.5, while prices showed slower increases, as the index fell back to 55.0 from 60.5 in May. However, the price index has been above 50 for 16 consecutive months.

Among the comments by respondents, most said business was doing well or improving. Fifteen of the 18 manufacturing industries represented in the survey showed growth in June.

The composite Non-Manufacturing Index from the non-manufacturing survey rose to 57.4 from 56.9 in May. The NMI has been above 50 for 90 consecutive months. Among the key components, new orders increased to 60.5 from 57.7 while new export orders gained 0.5 points to 55.0 from 54.5. Business activity, equivalent to the production index in the manufacturing survey, inched up just slightly to 60.8 from 60.7 in May. The activity index has been above 50 for 95 consecutive months.

The two somewhat negative points in the survey are a decline in the employment index and a rise in the prices index. The employment index fell to 55.8 from 57.8, suggesting that jobs grew but at a somewhat slower pace. The prices index rose to 52.1 from 49.2 in May, suggesting prices increased slightly in June.

Other data out this morning include the weekly initial claims for unemployment insurance and the estimate for June private payrolls from ADP. Initial claims came in at 248,000 for the week of June 30, slightly ahead of the 244,000 reading from the prior week. The four-week average was 243,000, up from 242,500 in the prior week. A claims figure below 300,000 is considered consistent with a robust job market.

ADP’s June estimate for private payrolls showed a gain of 158,000, below the 179,000 average change in private payrolls reported by the Bureau of Labor Statistics for the 12 months through May 2017. Payroll growth has slowed a bit recently, and there is a debate over whether the cause of the slowdown is a lack of demand or a lack of supply. A record number of open positions exist across the country, suggesting demand remains healthy, yet the underemployment rate and participation rate suggest that there is additional supply available.

The BLS will release the Employment Situation report for June on Friday July 7.

Robert Hughes

Bob 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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