Following May, which saw modest improvement coming off of April, which marked the worst month for manufacturing going back to April 2009, due largely to the ongoing COVID-19 pandemic, manufacturing output in June saw solid growth, according to data released today by the Institute for Supply Management (ISM).
In its monthly Manufacturing Report on Business, ISM reported that the report’s key metric, the PMI, came in at 52.6 (a reading of 50 or higher indicates growth), which marked a 9.5% improvement over May’s 43.1 and a 12.7% gain over April’s 39.9 reading. What’s more, June snapped a three-month stretch of PMI declines, which was preceded by two months of growth. June’s reading is 4.3% above the 12-month average of 48.3 and stands as the highest reading over the last 12 months. ISM also reported that the overall economy grew for the second straight month in June, following a decline in April, which snapped a stretch of 131 consecutive months of economic expansion.
ISM reported that 13 of the 18 manufacturing sectors it tracks saw growth in June, including: Textile Mills; Wood Products; Furniture & Related Products; Printing & Related Support Activities; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Plastics & Rubber Products; Chemical Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Paper Products; and Electrical Equipment, Appliances & Components. The four industries reporting contraction in June are: Transportation Equipment; Primary Metals; Fabricated Metal Products; and Machinery.
The majority of the report’s key metrics saw significant gains in June.
New orders, which are commonly referred to as the engine that drives manufacturing, headed up 24.6%, to 56.4, well ahead of May’s 31.8 and April’s 27.1, which marked the lowest reading for new orders since December 2008’s 25.9. ISM said 11 sectors saw new orders growth in June. This reading also snapped a four-month stretch of declines.
Production, at 57.3, headed up 24.1% to 57.3, following three months of contraction, while marking its largest monthly gain, going back to August 1952, when it expanded by 46.8%, coupled with four of the top six manufacturing sectors reporting growth. And employment, at 42.1, rose 10% compared to May, turning in its largest sequential increase since April 1961, when it was up 11%. ISM said that three of the top six manufacturing sectors reported employment growth in June.
June supplier deliveries, at 56.9 (a reading above 50 indicates contraction), were 11.1% below May’s 68.0, slowing at a slower rate for the eighth consecutive month. Inventories were flat, up 0.1%, to 50.5, growing for the second consecutive month. And customer inventories, at 44.6, were down 1.6%, down for the 45th consecutive month.
Comments from ISM members included in the report were somewhat mixed, with COVID-19 remaining and upticks in business serving as the key themes.
A transportation equipment respondent stated that “Gradually ramping production back in our plants. Most of our supply base continued to operate during COVID-19, so we are not seeing a significant supply risk. Will be monitoring supply chain financial health closely.” And a Food, Beverage & Tobacco Products pointed to having difficulty keeping up with a significant increase in demand related to COVID-19, adding that the industry is up 62.5 percent versus [a] year ago and that supply challenges throughout the supply chain. Supply could be hindered if another wave of COVID-19 hits in the fall.
In an interview, Tim Fiore, Chair of the ISM’s Manufacturing Business Survey Committee, explained that this report represents a positive reversal for manufacturing, with output, from March to April, off 7.6%, with a 9.5% gain, from May to June.
“We closed the month of June very positive,” he said. “Demand came back, and new order levels were respectively high, and the customer inventories numbers were low, which is really good. New export orders, while still contracting [up 8.1% to 47.6] were still really good, and backlog of orders [up 7.1% to 45.3] is only a few points off of growth. Production also responded well, and production showed a nice gain.”
While employment came in at 42.1, Fiore said that number is still good, as factories are still coming back to 50% of their January capacity.
Even though the June numbers are solid, especially when compared to April’s bottoming, Fiore explained it is premature to expect things to remain on this growth path, with the expectation that there will be stops and starts with factories, as well as things being based on local conditions, rather than being based on statewide conditions.
“I don’t see any governor closing a state, but I do see counties and municipalities closing and implementing stay-at-home orders for their populations, and there are factories in those populations,” Fiore explained. “That is going to lead to disruptions, and those disruptions are going to continue now for quite some time. I don’t think we have this [COVID-19] licked at all.”
What’s more, there is also a fair amount of underlying uncertainty in manufacturing, with oil in gas in the space, aerospace production severely limited, and a weak outlook for trucking, due to a lack of global demand and excess capacity.
Conversely, though, he noted that food and beverage remains strong, and consumer electronics is getting better and heading towards expansion territory, at respectable levels, with the same situation for chemical products, due to cheap oil prices and orders coming in from overseas for both segments.
“Over all, it is going to be a struggle, though,” he said. “I would not be surprised to see a PMI reading around the 48.5-to-52.5 range through the end of the year. That is not bad, given the headwinds coming up, with the pro-business candidate appearing to be losing right now. What that means towards longer-term investments…I don’t know if anyone is going to be making any additional investments. And the discussions with China around trade have now evolved into a battle for position in the world beyond just the trade issues. That will not bode well for global growth either.”
About the Author
Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for
Modern Materials Handling, and
Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis.
Contact Jeff Berman