In June, the US manufacturing sector enjoyed a modest increase in activity. It has been pretty darn solid, based on the latest positive news from the Institute for Supply Management (ISM). The ISM Manufacturing Purchasing Managers’ Index (PMI) increased to 49.0, surpassing analysts’ expectations and marking an improvement from May’s reading of 48.5. Even though still under the neutral level of 50, this news is another sign that the manufacturing sector is slowly turning the corner.
The ISM Manufacturing PMI beat expectations as well, coming in at 49.1 versus the consensus of 48.8. This uptick means that the economic activity in the sector is building steam. This is a bright spot on the map — especially for an American economy that has faced a rocky patch filled with unknowns and blame over the last few months.
Key Indicators of Manufacturing Activity
For anyone with an interest in economic indicators, the ISM Manufacturing PMI is your go-to resource for understanding the state of manufacturing. The report highlights various indices, including the Prices Paid Index and New Orders Index, which offer a comprehensive view of industry dynamics. Prices Paid Index rose to 69.7 from 69.4 meaning that manufacturers input prices are on the rise.
New Orders Index fell to 46.4 from 47.6, indicating a slow down in new orders coming in. This drop is worrisome in light of recent and impending production caps. The Employment Index has fallen to 45.0, down from 46.8 in May. This sharp drop reflects the deep challenge employers have found in hiring despite an increase in national output.
“Regarding output, the Production Index increased month over month and is now in expansion territory; however, the Employment Index dropped further into contraction as managing head count is still the norm, as opposed to hiring. The mixed indicators in output suggest companies are still being cautious in their hiring even with an increase in production.” – Susan Spence, MBA, Chair of the ISM Manufacturing Business Survey Committee.
Economic Implications and Market Reactions
The renewed momentum in manufacturing activity has big economic implications. Analysts hope that a manufacturing comeback might bode well for the economy overall. Investors are currently assessing this data alongside Federal Reserve Chair Jerome Powell’s remarks at the European Central Bank (ECB) Forum, which may influence monetary policy decisions.
The US Dollar (USD)—the world’s most widely traded currency—is trading with an exceptionally strong bearish bias. Yet it is holding near those multi-year lows, currently near 96.60. This depreciation is a result of market sentiment in the context of the continued shifting of economic realities and contextual unknowns. Traders are eagerly watching economic indicators and policy signals to determine how to move—particularly as they invest in future infrastructure stocks.
Future Prospects for Manufacturing
Public companies are already under an extraordinary amount of pressure—from supply chain disruptions to inflation. The mixed signals from the ISM report mean that the manufacturing sector needs to proceed with caution. All that said, more production is always encouraging. The fight to stay employed reveals that employers are clearly hunkering down when it comes to adding workers.
While annualized quarterly GDP numbers provide some important perspective on US economic performance, their use comes with some major caveats. They are only most useful when viewed in relation to past quarters or years. The mixed indicators indicate that although some industries are adjusting and expanding, others are still hampered by outside forces.