The ISM Manufacturing Index is derived from a survey of purchasing managers and their outlook on overall conditions by looking at factors such as orders for durable goods, industrial production, and hiring. It gives a general direction rather than the specific strength of the factory sector and manufacturing activity in the U.S. A reading above 50 is an indicator that the manufacturing sector is growing while a reading below 50 indicates a contraction.
In June, the ISM Manufacturing Index report increased to a level of 52.6, highlighting a 9.5-point increase from the May reading of 43.1. This value was 3.0 percentage points higher than the forecasted ISM Manufacturing PMI for June which was 48.6. With the overall Manufacturing Index now exceeding a value of 50, it is evident that expansion is occurring within the overall economy.
The Manufacturing Index is comprised of several sub-indexes that are all equally weighted when factored into the overall value of the Manufacturing Index. This past month all these sub-indexes experienced an increase in value, except for Supplier Deliveries Index which is down 11.1 percentage points from the May figure of 68 percent. While this decrease can represent a possible decline in economic activity, it is usually a positive sign for the economy because it represents increased supply availability and a normal level of tension between supply and demand.
Two of the other sub-indexes that witnessed signs of significant growth over the past month were the New Orders Index and Production Index. Both increased by just under 25 percent from their values in the month of May and were expected as the growth cycle has officially returned following three months of disruptions. Of the 18 manufacturing industries, 13 of them reported growth throughout the month of June as Food, Beverage, and Tobacco Products remained the best performing industry sector with demand increasing 62.5% versus a year ago. This substantial increase in demand has created tension within this sector that could impact supply should another wave of the Coronavirus hit in coming months. Many respondents in various industries of manufacturing indicated that they are extremely hopeful for the second half of the year as many industries begin to stabilize and reach levels of parity. With the growth cycle expected to continue for the second half of the year, it is expected that manufacturing levels will continue to rise, and the economy will remain in a period of expansion for the time being.
July 6, 2020