PMI skids to 52.7% in July despite positive outlook

Growth slips as oil prices and global economic uncertainty continue to linger, though the overall outlook among manufacturers is trending positive.
By Bob Vavra, Content Manager, CFE Media August 3, 2015

The Institute for Supply Management's Purchasing Manufacturers' Index (PMI) slipped to 52.7%, still well above the growth rate of 50% but down eight-tenths of a point from the June reading of 53.5%. Image courtesy: CFE MediaThe pace of manufacturing growth slowed in July, as concerns over oil prices and international economic stability lingered.

The Institute for Supply Management’s Purchasing Manufacturers’ Index (PMI) slipped to 52.7%, still well above the growth rate of 50% but down eight-tenths of a point from the June reading of 53.5%. The report fundamentals were mixed for the month, as the New Orders and Production indexes both were higher, while Employment and Raw Materials indexes fell. 

While overall manufacturing growth was up for the 31st consecutive month, there were external pressures that saw the index slide, said Bradley Holcomb, chairman of the ISM Manufacturing Business Survey Committee. "Comments from the panel reflect a combination of optimism mixed with uncertainties about international markets and the impacts of the continuing decline in oil prices," Holcomb said.

Oil prices fell 21% in July and were off almost 2% on Aug. 3 alone, as an oversupply in the market continued to drive prices lower. West Texas Intermediate crude oil was trading at about $45 a barrel as of 10 a.m. EST on Aug. 3.

Committee members were equally mixed in their views, with some citing specific drags on manufacturing growth, while others found a generally strong market. Among the comments:

  • "(Avian Influenza) fears in poultry industry (are) killing exports." (Food, Beverage & Tobacco Products)
  • "The market is in the summer slowdown." (Fabricated Metal Products)
  • "Oil price decline continues to negatively impact oil and gas industry in North America as many projects are not economically viable. Oil and gas jobs outlook is in retrenchment. Petrochemical is positive from a margin perspective, but focus is steady on safe cost containment." (Petroleum & Coal Products)
  • "Falling oil prices are once again driving chemical raw materials prices lower and creating an expectation of even lower prices in the coming months." (Chemical Products)
  • "The month of July was really slow, slower than the previous month. We are optimistic for the remainder of the year." (Computer & Electronic Products)
  • "Global orders still holding up in the wake of international uncertainties." (Fabricated Metal Products)
  • "Business conditions are stable, little change from last month." (Miscellaneous Manufacturing)
  • "There’s an abundance of containerboard in the global markets." (Paper Products)
  • "Inbound logistics are almost back to normal." (Machinery)
  • "Business continues to be strong." (Furniture and Related Products)

Despite July’s slowdown, the overall growth rate for manufacturing and for the overall economy continues to be positive. "The past relationship between the PMI and the overall economy indicates that the average PMI for January through July (52.6%) corresponds to a 3% increase in real gross domestic product (GDP) on an annualized basis," Holcomb said. "In addition, if the PMI for July (52.7%) is annualized, it corresponds to a 3% percent increase in real GDP annually."