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Purchasing Managers Index — Nonmanufacturing

July 3, 2019

The Institute for Supply Management not only publishes an index of manufacturing activity each month, they publish two days later a survey of non-manufacturing firms — which largely consists of services. The business activity index fell 3.0 points in June to 58.2 after having risen 1.7 points in May.  The February level of 64.7 was the highest level for this index since January 2004.      In June 16 of 18 service-sector  industries  reported expansion.  Good, solid, broad-based growth.  At its June level the non-manufacturing index equates to GDP growth of 2.3%.

Typically, large changes in the overall index are led by orders which, in this case, fell 2.8 points to 55.8 after having risen 0.5 point to 58.6 after having declined 0.9 point in April.   At 55.8 this series solid growth in services in the months ahead.

 

The ISM non-manufacturing index for employment declined 3.1 points in June to 55.0 after having jumped 4.4 points in May.  Comments from respondents include: “Filling open positions” and “We added a few more employees to fill outstanding needs, as well as “Downsizing due to closing brick-and-mortar stores.”   Jobs growth should continue in upcoming months at about the same pace we  have seen of roughly 170 thousand per month.

Finally,  the price component jumped 3.5 points in June to 58.9 after having declined 0.3 points in May.   Fourteen non-manufacturing industries reported an increase in prices paid during the month.  At its current level of 55.4, prices are rising at a moderate pace.

Stephen Slifer

NumberNomics

Charleston, SC


Purchasing Manager’s Index

July 1, 2019

The Institute for Supply Management’s index of conditions in the manufacturing sector fell 0.4 point in June to 51.7 after having fallen 0.7 point in May.   Clearly, the escalating trade trade war between the U.S. and China is taking its toll on manufacturers.  But while the PMI has fallen fairly steadily since reaching a peak of 60.8 in August of last year, the decline has been from a very high level.    The PMI for May at 51.7 still corresponds to a 2.6% increase in GDP growth.  The earlier numbers were consistent with GDP growth between 4.0-4.5%

Timothy R. Fiore,  Chair of the ISM’s Manufacturing Business Survey Committee indicated that “Comments from the panel reflect continued expanding business strength, but at soft levels.  Respondents expressed concern about U.S.-China trade turbulence, potential Mexico trade actions and the global economy. Overall, sentiment this month is evenly mixed.”

It is important to recognize that the overall index is the compilation of a number of different components — production, orders, employment, supplier deliveries, inventories, prices, the backlog of orders, exports, and imports.

The orders component fell 2.7 points in June to 50.0.  after having risen 1.0 point in May.  “Customer demand did not expand for the first time since December 2015, when the index registered 49.6 percent. Three of the top six industry sectors expanded, two contracted and one was unchanged.”  An orders index above 52.4  is, over time, consistent with an  increase in the Census Bureau’s series on factory orders.

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The production component jumped 2.8 points in June to 54.1 after having fallen 1.0 point in May.    “Production expansion continued in June, and at a stronger pace compared to May. The index recorded the strongest gain of all NAPM  sub-indexes. Production output was able to improve customer-inventory positions and reduce backlog orders.” said Fiore.  A level above 51.5 is consistent with an increase in the Federal Reserve’s industrial production figure.

The employment index rose 0.8 points in June to 54.5 after having climbed 1.3 points in May.  The ISM report said the following:   “Employment continued to expand, and at marginally higher levels compared to May. Comments were predominantly ‘pro hire’ in support of capacity expansion, replacing retiring workers and adding summer help. Few comments were in support of hiring freezes and head-count reductions.” While the economy is currently cranking out about 190 thousand jobs per month, the factory sector thus far accounts for only about 20 thousand of them.  Most of the jobs are coming from services and construction.  An ISM employment index above 50.8 is consistent with an increase in the Bureau of Labor Statistics data on manufacturing employment.

The backlog of orders edged upwards by 0.2 point in May to 47.4 after having plunged 6.7 points in May.  Fiore said “Backlogs shrank during June due to production output being able to exceed new order intake rates .”  Backlogs remain very close to their lowest level of performance since October 2016, when the index registered 45.8 percent.”

The prices paid component plunged 5.3 points in June to 47.9 after having risen 3.2 points in May.   ISM officials noted that,  “Prices contracted in June for the first time since February, when the index registered 49.4 percent. Shortages and price increases remain in electronic components and food ingredients; they are offset by copper, steel, energy and aluminum price declines.” A price index level above 52.5 is consistent with an increase in the BLS producer prices index for intermediate materials.

We believe that the economy is  expanding at a relatively robust pace.  We expect GDP growth of 2.6% in 2019 after having risen 3.0% last year.  During that period of time the manufacturing sector will continue to expand at a moderate pace.

Stephen Slifer

NumberNomics

Charleston, SC