The June ISM manufacturing index rose to 55.3 (consensus 52.0) from 53.5 in May. The components of the survey are still not as strong as they were earlier in the year. However, this release indicates some rebound in manufacturing activity and helps allay concerns that the recent slowdown in economic activity will be more long-lived.
June headline index rose to 55.3 (vs 53.5 in May)
June new orders index rose to 51.6 (vs 51.0 in May)
June production index rose to 54.5 (vs 54.0 in May)
June employment index rose to 59.9 (vs 58.2 in May)
June backlog of orders index fell to 49.0 (vs 50.5 in May)
June exports orders index fell to 53.5 (vs 55.0 in May)
June imports index fell to 51.0 (vs 54.5 in May)
June prices paid index fell to 68.0 (vs 76.5 in May)
Demand indicators in today’s release were mixed. The new orders index edged up slightly to 51.6, while the exports index fell further to 53.5. On the margin, this suggests that domestic orders stabilized, but new orders are still down notably from an average of 65 in the first four months of the year.
The stable to rising production and employment readings indicate that manufacturing firms are continuing to expand their output. This is an encouraging sign, suggesting that businesses generally expect the recent deceleration in the economy to subside. However, with production still growing but demand somewhat tepid, there was another drop in the order backlog series, down to 49.0.
One of the comments from respondents noted that the earthquake in Japan caused shortages of some auto equipment, negatively impacting production. But most of the other comments relate directly to the outlook for demand, which remains the most important consideration for manufacturers.
Bottom Line: Today’s reading allays fears of a further slowdown in manufacturing. New orders remained at subdued levels.
Ryan Wang