Manufacturing Reports Signal Growth, But How Much?

Manufacturing Reports Signal Growth, But How Much?

Two respected surveys of purchasing managers released today indicated continued growth in manufacturing in June, but the reports differed in how much strength they were detecting in that expansion.

The manufacturing survey issued by the Institute for Supply Management (ISM) registered 55.3% for June, just 0.1% less than in May and the thirteenth consecutive month of expansion for the sector.

But the purchasing managers’ index from Markit registered 57.3 in June, the highest figure for U.S. manufacturing since May 2010 and a figure that the financial information services firm said “signaled a strong improvement in overall business conditions.”

The ISM survey showed new orders grew to 58.9%, a 2-percentage point increase from May. ISM’s production index registered 60%, a 1% drop from May. ISM’s index for manufacturing employment remained in growth territory at 52.8%.

Looking at the ISM report, Cliff Waldman, senior economist for Manufacturers Alliance for Productivity and Innovation (MAPI), said U.S. factory sector growth “will likely remain moderate for the balance of 2014 and into 2015.” He noted that while the new orders and production indices suggested solid growth, “the index for the backlog of orders, which reveals the near-term pressure on production, fell a disturbing 4.5 percentage points to 48%, which suggests contraction.”

A sluggish U.S. economy and regional difficulties around the world, Waldman said, were continuing to manifest themselves in “sub-par performance for key manufacturing demand drivers—business equipment and exports.”

But indices in the Markit survey were up for output (61.2 from 58.8) and employment (54.0 from 53.7) as well as new orders, which rose to 61.2 in June from 58.8 in May.

“Business was booming at U.S. goods producers in June,” observed Chris Williamson, chief economist at Markit. “Factory output, order books and payroll numbers rose at some of the fastest rates we’ve seen since the recession, rounding off the best quarter for four years in terms of manufacturing expansion.” Williamson said Markit expected U.S. GDP to rise at a rate in excess of 3%, “more than reversing the contraction seen in the first quarter.”

Exports, however, offered a sour note in both surveys of purchasing managers. New export orders in the ISM survey fell to 54.5% in June from 56.5% reported in May, while Markit’s report showed a similar drop to 50.6 in June from 52.2 in May.

Export performance remains “a real disappointment and trade will likely act as a drag on the economy again in the second quarter,” said Williamson.

TAGS: Trade Talent
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