Domestic manufacturing activity remained largely flat in July in spite of uncertainty surrounding Brexit and the U.S. presidential election. The nation’s leading manufacturing index, the Institute for Supply Management’s PMI, slipped slightly to 52.6 percent in July from June’s level of 53.2. The data indicates a slow and steady pace of improvement as businesses enter the second half of the year.
“Overall it feels a lot like last month – steady as she goes,” said Bradley J. Holcomb, chair of the ISM Manufacturing Business Survey Committee. “It’s continuing the trend toward growth that has stood up for the fifth consecutive month.” Any number above 50 indicates the manufacturing industry is expanding.
Last month, U.S. manufacturing executives said they did not expect Brexit to have a major impact on their business and so far, that appears to be the case. “Manufacturers indicated the they are keeping their eye on Brexit but so far the impact has been negligible,” Holcomb said. Some industries even expect Brexit to have a positive effect as Britain prepares to exit the EU. “The U.K. is flexing its muscle to show what it can do on its own,” Holcomb said. “We’ll see how it plays out.”
U.S. manufactures’ rate of production increased by 0.7 percent in July to reach 55.4. New orders also remained strong at 56.9—a 0.1 percent slip from 57 percent in June. Employment decreased to below 50, however, to 49.4 percent. “We expect there will be no growth in employment for the rest of the year,” said Holcomb. “We will see it go up and down based on uncertainty in the market because growth is solid but not robust. Plus, productivity is kicking in so we expect employment to remain at that level.”
Manufacturers’ backlog decreased to 48.0 percent in July from 52.5 percent in June. “That’s another positive sign,” said Holcomb. “Manufacturers are eating through their backlog—which is what backlog is for. That’s an indicator of strong production and that manufacturers are utilizing their assets.” Suppliers appear to be having problems keeping up with their customers’ demand as raw materials deliveries to factories slowed from 55.4 percent in June to 51.8 percent. “Manufacturers are holding lower levels of inventory and suppliers are racing to catch up,” said Holcomb. “That’s also a good thing—it means there is tightness in the supply chain.”
The first half of the year closed on a positive note for manufacturers of computers and electronics products. One OEM reported the June quarter was stronger than expected although business is still below its annual operation plan (AOP). Companies in the oil industry are still having a hard time. “[The] oil and gas industry sector continues to realign staff to reflect $40-$50/barrel oil,” one industry executive said. “This price range is seen as the new normal for the foreseeable future.”