Monthly, the Institute for Supply Management (ISM) publishes its Report on Business, which provides key economic data on the manufacturing industry. The data used to compile the report is based on survey respondents from many different sectors within the industry who are asked to rate their organization’s performance based on a comparison with the previous month.
The Purchasing Managers Index (PMI) is the composite index for the manufacturing industry compiled by the ISM, and is based on five sub-categories: new orders, production, employment, supplier deliveries and inventories. The PMI index is utilized to help analyze the state of the economy and predict future growth or contraction.
The ISM considers a PMI index over 50.0 to indicate that the manufacturing environment is expanding. The ISM uses benchmark readings for each of the sub-categories to measure the current month’s index as follows:
New Orders – Index above 52.3 is generally consistent with an increase in the Census Bureau’s series on manufacturing orders.
Production – Index above 51.2 is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.
Employment – Index above 50.5 is generally consistent with an increase in the Bureau of Labor Statistics data.
Supplier Deliveries – Index above 50 generally indicates slower deliveries.
Inventories – Index above 42.8 is generally consistent with expansion in the Bureau of Economic Analysis’ figures on overall manufacturing inventories.
Rolling three-month review:
The PMI index in June dipped just below the 50.0 benchmark, indicating some contraction within the manufacturing industry. This marked the first time since July 2009 that the PMI index was below 50.0. The new orders index dropped considerably in June, also falling below 50.0, for the first time in over three years. Production and inventory levels are down from the prior month.
The Federal Reserve Bank, in its July 18 edition of the Beige Book, indicated that overall economic activity expanded at a modest to moderate pace during the period from June to early July, with the manufacturing industry continuing to expand slowly in most of the 12 Federal Reserve districts.
The Fourth District (Cleveland), in which Western Pennsylvania and Columbus, Ohio are included, reports that economic activity continued to expand at a slower pace. The manufacturing sector reports slight increases in production, although the outlook remains mixed. It was noted that steel producers are reducing inventory levels, and shipping volume is flat or down slightly from the prior report, due in large part to economic uncertainty and declining raw materials prices.
Capital spending in the manufacturing industry remains in line with budgets, and employment levels remain steady.
For the first time in a few years, we have seen the first signs of a decline in the manufacturing sector. We anticipate that the typical seasonal decline may continue this trend.
For further information on the ISM Report On Business, please use the following link:
For further information from the Federal Reserve Bank, please use the following link:
Please contact a member of the Schneider Downs Manufacturing Group with any questions you may have.
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