Although presidential politics are coloring the perception of domestic manufacturing, U.S. factory production in June increased at the fastest pace in more than a year. The Institute for Supply Management’s leading index, the PMI, increased by 1.9 percent from May to reach 51.3 percent. Any number over 50 indicates the sector is growing.
Although the June data was largely collected before Britain’s historic vote to leave the European Union, the ISM surveyed its manufacturing and non-manufacturing members on Brexit. The survey found that, while most procurement executives do not foresee major disruptions, many are cautiously watching the situation closely and believe Brexit will hamper growth.
When asked to project what could be the net financial impact of Brexit on their organization, a majority (58 percent in manufacturing, 61 percent in non-manufacturing) believed Brexit would have a negligible impact on their firm. About one in three surveyed thought their firm would be negatively or slightly negatively impacted. Only a small proportion (less than 10 percent) felt their business would be positively or at least slightly positively impacted by Brexit.
For the remainder of 2016, procurement executives indicated that they were most concerned about financial market uncertainty and currency movements, according to the ISM. Secondarily, they were concerned about global growth overall.
Supply management executives were least concerned about their firm’s trade links with the U.K. and EU. A strong majority of those queried believed Brexit would have a negligible impact on their capital spending plans. Fewer than one in five respondents expected that their capital budgets would be negatively impacted. Only a very small proportion of respondents saw Brexit as spurring their capital budget, ISM found.
Among respondents projecting a negative impact, ISM reported that changes in the exchange value of the dollar could be the most direct cause of their challenges. Changes in global demand is seen as a secondary cause and a change in demand for goods and services by their customers in the United Kingdom is seen as a possible, though somewhat unlikely, reason for not meeting expectations.
Solid June Report
All of the indexes supporting the June PMI showed improvement. Production increased 2.1 percent to 54.7; new orders increased by 1.3 percent to 57.0; and manufacturers’ backlog grew by 5.5 percent to 52.5. Exports grew by 1 percent to 53.5. “It’s a very solid report overall,” said Brad Holcomb, chair of the ISM’s Manufacturing Business Survey Committee. “The numbers are all positioned in the right direction: the PMI is the highest it’s been since February 2015; production is at its highest since July of 2015; employment is steady as she goes.”
Manufacturers are having a hard time keeping up with demand, he added: supplier deliveries are slowing and backlog is up. “That’s all reason for optimism,” Holcomb said.
The June index exceeded the most optimistic projection in a Bloomberg survey of economists, the news site reported. Thirteen manufacturing sectors reported growth, including the computer and electronic sector. Electronics industry respondents to the ISM’s monthly business survey said conditions remained steady month over month and activity was in line with forecasts.
In terms of the U.S. manufacturing industry, Holcomb’s point of view differs from the doomsayers. On an absolute scale, Holcomb said, manufacturing has continued to grow and remains a point of strength in the U.S. “The world loves our products, our prices and our innovation,” he said.
Although the services sector has outpaced manufacturing — manufacturing now accounts for 12 percent of the U.S. economy; down from 25 percent — it continues to grow. “Looking forward I think the industry will continue to build on its momentum and, aside from things like Brexit and politics, growth is set up to continue,” Holcomb concluded.