On July 1, the Manufacturing Institute for Supply Management (ISM) released its latest Report on Business, a monthly publication that examines industry trends and statistics within the manufacturing sector. The composite Purchasing Managers Index (PMI) referenced below is compiled and used by the ISM to analyze the state of the economy and predict future growth or contraction based on five categories: New Orders, Production, Employment, Supplier Deliveries and Inventories. A PMI index over 50% indicates that the manufacturing environment is expanding. Here are the PMIs for each month in Q2 2020 and Q2 2019:
The effects of the COVID-19 pandemic and related government-imposed shutdowns brought an end to 131 consecutive months of U.S. economic growth. As many of the stoppages came to an end in May and June, industry as a whole started to recover and now appears to be entering an expansion cycle. Panelists interviewed for this report, all manufacturing industry leaders, were more optimistic than in previous reports, offering 1.3 positive comments for every negative remark made. Of the 18 manufacturing industries reviewed, only four continued to note contraction: Transportation Equipment, Primary Metals, Fabricated Metal Products and Machinery.
New Orders increased from 31.8% in May to 56.4% in June, marking the largest month-to-month increase since records began in January 1948. Food, Beverage & Tobacco Products (FBT) and Chemical Products saw the most significant growth. One FBT panelist noted a 62.5% increase in the industry as a whole from 2019. Fabricated Metal Products and Transportation Equipment, however, continued to see a decline in new orders.
Production experienced its largest increase since April 1952, increasing from 33.2% in May to 57.3% in June. Despite the significant increase for manufacturing as a whole, however, Primary Metals, Fabricated Metal Products and Transportation Equipment continued to face declines in production.
Although the report paints a fairly positive picture, keep in mind that this rebound was spurred by the reopening of the economy and the loosing of restrictions. With ongoing concerns surrounding COVID-19, we may not have seen the end of government-mandated shutdowns, which will continue to pose threats to manufacturing as companies try to budget and plan for production in an uncertain market. Conversely, some industries have experienced significantly increased demand during the quarantine and while Americans continue to socially distance. This demand may not last when we finally go back to how life was and those industries will likely need to plan for decreases in demand.
For further information on the ISM Report on Business, visit their website.
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