U.S. factories hit overdrive in June as domestic manufacturing indexes showed significant growth from the prior month. The Institute for Supply Management’s leading index, the PMI, increased by 2.9 percent in June to reach 57.8 percent – its fastest pace in nearly three years. All PMI supporting indexes followed suit: The new orders index registered 63.5 percent, an increase of 4 percentage points from the May reading of 59.5 percent; and the production index registered 62.4 percent, a 5.3 percentage point increase compared with the May reading of 57.1 percent. The employment index registered 57.2 percent, an increase of 3.7 percentage points from the May reading of 53.5 percent, a sign that factories are expanding their payrolls.
Any number over 50 indicates expansion; a number below 50 indicates contraction.
New export orders increased by 2 percent in June to 59.5 percent. Faster growth in orders and production in the final month of the quarter, together with rising exports, shows manufacturing remains on solid footing.
Although prices are continuing to rise, the rate of increase has slowed somewhat, according to Timothy R. Fiore, chair of the ISM Manufacturing Business Survey Committee. The prices index registered 55 percent in June, a decrease of 5.5 percentage points from the May reading of 60.5 percent, indicating higher raw materials’ prices for the 16th consecutive month. However, that’s a slower rate of increase compared with May.
Supplier deliveries and inventory levels are struggling to keep pace with demand, Fiore added. The supplier deliveries index registered 57 percent, a 3.9 percentage point increase from the May reading of 53.1 percent. The inventories index registered 49 percent, a decrease of 2.5 percentage points from the May reading of 51.5 percent. “Comments from the panel generally reflect expanding business conditions; with new orders, production, employment, backlog and exports all growing in June compared to May and with supplier deliveries and inventories struggling to keep up with the production pace,” Fiore said.
Demand is picking up, said an executive from the electrical equipment, appliances and components industry, which is "meeting budget expectations." “Business is still very robust,” said a computer and electronic products executive, adding the company has had to hire workers to match increased demand.
“Everything was strong,” said Fiore. Unless supply-chain constraints arise, “there’s really no reason” why the robust pace of manufacturing can’t continue, he said. That could be the only damper in an otherwise robust demand environment for electronics: both electric components and electronic components have been in short supply for four months, according to the ISM.
Overall, the June manufacturing expansion was broad based, with 15 of 18 industries surveyed by the purchasing managers’ group posting growth. They included machinery, transportation equipment, computer and electronic products, and petroleum and coal products. The three industries reporting contractions were apparel, textile mills and primary metals.