PMI a mixed bag for June, as index slips to 55.3%
One-tenth point drop continues steady growth, but consumer spending a concern
It was a mixed bag of data in the June PMI Manufacturing Index from the Institute for Supply Management, with new orders on the increase and production falling back. That was reflected in the 55.3% PMI Index figure for June, which was 0.1 percentage point below the May reading but still more than 10% above the break-even point of 50%.
It was the 13th straight month of growth in the manufacturing, but many increases seem to have leveled off. While new orders grew from 56.9% to 58.9%, the production index fell from 61% to 60% and employment stayed the same at 52.8%.
Analysts warn that unless consumer spending increases to remove some inventory backlogs, manufacturing's year-long growth may slow down. "Manufacturing activity appears to be maintaining positive momentum as producers ramp-up production in response to increased orders for machinery and equipment," said Sterne Agee chief economist, Lindsey Piegza. "But a ramp-up in inventory-building without sustained demand is not a lasting outcome. With consumer spending falling short of expectations thus far in Q2, after a weaker-than-expected start to the year, it remains unlikely that a surge in manufacturing will be a lasting driver in near-term growth."
Manufacturers themselves seem more positive about the near-term growth potential. Among the comments from committee members:
- "Business volume is increasing at a good pace and consumers appear to be spending more." (Food, Beverage & Tobacco Products)
- "The strength of the automotive industry continues to drive the high demand for steel." (Fabricated Metal Products)
- "Business still very solid and strong - Class 8 Truck and RV." (Transportation Equipment)
- "Seasonal business remains strong." (Primary Metals) "Another strong month overall." (Computer & Electronic Products)
- "Outlook is better. General uptick in our company's confidence." (Chemical Products)
- "Orders are picking up, but pricing has declined in last month. Not the norm for this time of year." (Wood Products)
- "Conditions are slightly more favorable than last year." (Printing and Related Support Activities)
- "Business is picking up once again." (Machinery)
- "Business conditions are stable to improving." (Miscellaneous Manufacturing)
June's growth marked the 61st straight month of overall economic growth, according to the PMI. In fact, the index has not been below 52.0% since a 51.3% reading in January 2014, a decrease largely attributed to the brutal winter in much of the northern U.S. The June reading corresponds to an annual increase in GDP of 4.0%, according to ISM officials.
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Annual Salary Survey
Before the calendar turned, 2016 already had the makings of a pivotal year for manufacturing, and for the world.
There were the big events for the year, including the United States as Partner Country at Hannover Messe in April and the 2016 International Manufacturing Technology Show in Chicago in September. There's also the matter of the U.S. presidential elections in November, which promise to shape policy in manufacturing for years to come.
But the year started with global economic turmoil, as a slowdown in Chinese manufacturing triggered a worldwide stock hiccup that sent values plummeting. The continued plunge in world oil prices has resulted in a slowdown in exploration and, by extension, the manufacture of exploration equipment.
Read more: 2015 Salary Survey