United States: Manufacturing conditions improve to near-three-year high in June
July 3, 2017
The ISM manufacturing index rose notably in June, buttressed by faster expansions in new orders, output and employment. The indicator rose to 57.8 in June from 54.9 in May, marking the best result since August 2014 and confounding market analysts, who had expected a much smaller pickup to 55.2. As a result, the index is now further above the 50-threshold that separates expansion from contraction in the U.S. manufacturing economy, which signals a solid pace of growth in the sector.
The prospects for the sector remain particularly high. In June, new orders growth gathered pace and neared the highs observed at the outset of the year, with survey respondents reportedly noting stronger demand both at home and abroad. Output growth also recovered most of the gains lost in recent months, trailing the highs recorded earlier this year. Higher demand and output prompted manufacturers to increase their staffing levels at a faster rate than in May, which was not enough to prevent backlogs of work from accumulating at a faster pace in June. In line with buoyed demand and increased output, supplier delivery times increased. Regarding prices, input inflation decelerated once again in June, although prices continue to increase at a brisk pace.
The June ISM report was an undoubtedly positive one. The upbeat momentum in the manufacturing sector and strong pace of job creation point to a rebound in activity in Q2 after meagre Q1 GDP growth, in line with FocusEconomics forecasts. Nonetheless, the survey should be taken with a pinch of salt. An alternative survey released on Monday, the IHS Markit Manufacturing PMI, posted the weakest reading since September on account of subdued output. This suggests that the discrepancy observed between hard and soft data since the November elections could be seen again in Q2.
Author: David Ampudia, Economist