The nation’s leading manufacturing index surged to a 14-month high in June, rebounding by 9.5 percent into expansion territory. The Institute for Supply Management’s PMI reached 52.6 percent last month from a level of 31.8 percent in May.
“As predicted, the growth cycle has returned after three straight months of Covid-19 disruptions,” said Tim Fiore, chair of the ISM’s manufacturing survey committee. “Demand, consumption and inputs are reaching parity and are positioned for a demand-driven expansion cycle as we enter the second half of the year.”
Any reading above 50 indicates manufacturing growth. Computers, electronics and chemical products all returned to respectable levels last month, said Fiore, with readings in the mid-50s. For electronics, that’s on par with June of last year.
Activity in the PMI’s supporting indexes in June reached historic rates. New orders surged by 24.6 points in June – the highest in records dating back to 1948 – to 56.4. Production expanded by 21.4 percent to 57.3; the strongest monthly advance since 1952. Employment expanded by 10 percent but is still depressed at 41.2.
“I guess I’m not surprised by the data,” Fiore said, “because we saw a reopening of businesses in May. We looked at May as a transition month, so June was a full month of reopening activity. What you don’t see is a stumbling in reopening.”
In the last week of June, the Covid-19 infection rate soared in the U.S. “I don’t believe any single governor will shut down a state,” he added. “What you’ll probably see are county-by-county or even town-by-town restrictions. The issue there is restriction of movement and employees’ comfort level in returning to work.”
New orders grew at a respectable level, said Fiore, supported by a slowdown in export-order contraction. Customers’ inventories returned to a level considered a positive for future production, and backlog of orders contracted at a lesser pace.
This is not necessarily an indication of pent-up demand. Consumers have been able to buy what they need via e-commerce, Fiore said, so with the possible exception of automobiles, supplies have been adequate.
Consumption, as measured by the production and employment indexes, contributed positively (a combined 34.1-percentage point increase) to June’s PMI. Employees returned to work in June for most companies.
Inputs — expressed as supplier deliveries, inventories and imports — weakened, due to supplier delivery issues abating and import levels improving. Inventory levels reached parity with supply and demand. Inputs contributed negatively (a combined 11-percentage point decrease) to the PMI calculation but were more than offset by the demand and consumption improvement. Prices entered expansion again, but at marginal levels, supporting a positive outlook.
Manufacturers’ optimism also improved last month, with 1.3 positive comments to the ISM for every one cautious comment.
Around the world, manufacturing is looking like it’s over the worst of the slump, Bloomberg reported. The euro-area PMI rose in June, though employment fell across the region, pointing to the lingering threat of rising unemployment. IHS Markit also noted that with sentiment and production below pre-crisis peaks, the initial rebound in the surveys could flatten out.
In Asia, the measures for Japan, South Korea, and Taiwan improved slightly in June, Bloomberg said, although they remained below the key 50 level that divides expansion from contraction. Gauges for China also rose.