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July ISM PMI 54.2% Highest Since March 2019

August 3, 2020

Economic activity in the manufacturing sector grew in July, with the overall economy notching a third consecutive month of growth, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®.

The July PMI registered 54.2 percent, up 1.6 percentage points from the June reading of 52.6 percent. This figure indicates expansion in the overall economy for the third month in a row after a contraction in April, which ended a period of 131 consecutive months of growth. The New Orders Index registered 61.5 percent, an increase of 5.1 percentage points from the June reading of 56.4 percent. The Production Index registered 62.1 percent, up 4.8 percentage points compared to the June reading of 57.3 percent. The Backlog of Orders Index registered 51.8 percent, an increase of 6.5 percentage points compared to the June reading of 45.3 percent. The Employment Index registered 44.3 percent, an increase of 2.2 percentage points from the June reading of 42.1 percent. The Supplier Deliveries Index registered 55.8 percent, down 1.1 percentage points from the June figure of 56.9 percent.

“The Inventories Index registered 47 percent, 3.5 percentage points lower than the June reading of 50.5 percent. The Prices Index registered 53.2 percent, up 1.9 percentage points compared to the June reading of 51.3 percent. The New Export Orders Index registered 50.4 percent, an increase of 2.8 percentage points compared to the June reading of 47.6 percent. The Imports Index registered 53.1 percent, a 4.3-percentage point increase from the June reading of 48.8 percent.

“In July, manufacturing continued its recovery after the disruption caused by the coronavirus (COVID-19) pandemic. Panel sentiment was generally optimistic (two positive comments for every one cautious comment), continuing a trend from June. Demand expanded, with the (1) New Orders Index growing at a strong level, supported by the New Export Orders Index re-entering expansion; (2) Customers’ Inventories Index remaining at a level considered a positive for future production, and (3) Backlog of Orders Index returning to expansion for the first time in five months. Consumption (measured by the Production and Employment indexes) contributed positively (a combined 7-percentage point increase) to the PMI® calculation, with industries continuing to expand output after May’s return-to-work actions.

Inputs — expressed as supplier deliveries, inventories and imports — weakened for the third straight month, due to supplier delivery issues abating and import levels re-entering expansion. Inventory levels contracted due to strong production output, supplier delivery difficulties and inventory minimization. Inputs contributed negatively (a combined 4.6-percentage point decrease) to the PMI® calculation but were more than offset by the demand and consumption improvement, as was the case in June. (The Supplier Deliveries and Inventories indexes directly factor into the PMI®; the Imports Index does not.) Prices remained in expansion, supporting a positive outlook.

“The growth cycle continues for the second straight month after three prior months of COVID-19 disruptions. Demand and consumption continued to drive expansion growth, with inputs remaining at parity with supply and demand. Among the six biggest industry sectors, Food, Beverage & Tobacco Products remains the best-performing industry sector, with Chemical Products, Computer & Electronic Products and Petroleum & Coal Products growing respectably. Transportation Equipment and Fabricated Metal Products continue to contract, but at soft levels,” says Fiore.

Of the 18 manufacturing industries, 13 reported growth in July, in the following order: Wood Products; Furniture & Related Products; Textile Mills; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Chemical Products; Apparel, Leather & Allied Products; Computer & Electronic Products; Primary Metals; Petroleum & Coal Products; Miscellaneous Manufacturing; and Electrical Equipment, Appliances & Components. The three industries reporting contraction in July are: Transportation Equipment; Machinery; and Fabricated Metal Products.

WHAT RESPONDENTS ARE SAYING

  • “Orders starting to pick up. [An] increase of about 35 percent to 40 percent.” (Chemical Products)
  • “Overall business remains down almost 70 percent. We are hanging on to as many employees as possible, but we will have to lay off 30 percent or more for at least two to three months until September or October.” (Transportation Equipment)
  • “While demand in [the] coming six months is stabilizing, it is at a significant reduction and clear [that] customers have little confidence in the forecasts. Export orders to Brazil, South Africa, [and the] Middle East are largely cancelled for balance of 2020.” (Fabricated Metal Products)
  • “Manufacturing outlook has improved greatly in June, as business has resumed at nearly 100 percent. We have implemented a number of safeguards that are costing extra money, but we are running.” (Computer & Electronic Products)
  • “Stabilizing demand for refrigerated and frozen beverage and dessert, but still at higher level than a year ago. Uncertainty of school opening in the fall: How much demand will continue or shift will be dictated by students returning to school or not.” (Food, Beverage & Tobacco Products)
  • “Uncertainty regarding our industry and business has not improved. We are developing the 2021 budget around multiple scenarios.” (Petroleum & Coal Products)
  • “Incoming orders are slow. This is usually our busiest time of the year, but production is reduced due to lack of demand. Additional layoffs expected.” (Furniture & Related Products)
  • “General business climate continues to be subdued, driving highly conservative forecasting due to variability in the ongoing pandemic-driven conditions and economic response.” (Machinery)
  • “We are still seeing our customers shut down or effected by COVID-19. We are hoping for a bounce back in September.” (Miscellaneous Manufacturing)
  • “General business conditions are in a general slowing pattern. Many of the plants are on reduced hours and/or furloughs. About 20 percent to 25 percent of plants are scheduled to be consolidated in the next six months to improve margins and profitability.” (Nonmetallic Mineral Products)

Manufacturing at a Glance
July 2020

Index Series Index Jul Series Index Jun Percentage Point Change Direction Rate of Change Trend* (Months)
PMI® 54.2 52.6 +1.6 Growing Faster 2
New Orders 61.5 56.4 +5.1 Growing Faster 2
Production 62.1 57.3 +4.8 Growing Faster 2
Employment 44.3 42.1 +2.2 Contracting Slower 12
Supplier Deliveries 55.8 56.9 -1.1 Slowing Slower 9
Inventories 47.0 50.5 -3.5 Contracting From Growing 1
Customers’ Inventories 41.6 44.6 -3.0 Too Low Faster 46
Prices 53.2 51.3 +1.9 Increasing Faster 2
Backlog of Orders 51.8 45.3 +6.5 Growing From Contracting 1
New Export Orders 50.4 47.6 +2.8 Growing From Contracting 1
Imports 53.1 48.8 +4.3 Growing From Contracting 1
OVERALL ECONOMY Growing Faster 3
Manufacturing Sector Growing Faster 2
Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.
*Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY


 

Commodities Up in Price


Aluminum (2); Copper (2); Crude Oil (3); Diesel Fuel (2); High-Density Polyethylene; Lumber; Oil-Based Products; Plastic Products; Polypropylene; and Precious Metals.

 

Commodities Down in Price


Diesel Fuel (5); Steel — Hot Rolled; and Steel Products (4).

 

Commodities in Short Supply


Alcohols; Personal Protective Equipment (PPE) (3); PPE — Gloves (5); PPE — Masks; and Sanitizers & Disinfectants (2).

Note: The number of consecutive months the commodity is listed is indicated after each item.

 


JULY 2020 MANUFACTURING INDEX SUMMARIES


PMI®

Manufacturing grew in July, as the PMI® registered 54.2 percent, 1.6 percentage points higher than the June reading of 52.6 percent. “The PMI® signaled a continued rebuilding of economic activity in July and reached its highest level of expansion since March 2019, when the index registered 54.6 percent. Four of the big six industry sectors expanded. The New Orders and Production indexes returned to strong expansion levels. The Supplier Deliveries Index remained at a more normal level of tension between supply and demand. Seven of the 10 subindexes registered expansion, up from five in June,” says Fiore. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI® above 42.8 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the July PMI® indicates the overall economy grew in July for the third consecutive month following contraction in April. “The past relationship between the PMI® and the overall economy indicates that the PMI® for July (54.2 percent) corresponds to a 3.3-percent increase in real gross domestic product (GDP) on an annualized basis,” says Fiore.

THE LAST 12 MONTHS


Month
PMI®
Jul 2020 54.2
Jun 2020 52.6
May 2020 43.1
Apr 2020 41.5
Mar 2020 49.1
Feb 2020 50.1
Month
PMI®
Jan 2020 50.9
Dec 2019 47.8
Nov 2019 48.1
Oct 2019 48.5
Sep 2019 48.2
Aug 2019 48.8
48.6
54.2
41.5

New Orders

ISM®’s New Orders Index registered 61.5 percent in July, an increase of 5.1 percentage points compared to the 56.4 percent reported in June. This indicates that new orders grew for the second consecutive month. “All of the top six industry sectors (Chemical Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Petroleum & Coal Products; Transportation Equipment and Computer & Electronic Products) expanded. Demand improved in July, as demonstrated by 13 industry sectors expanding and only two contracting. The index achieved its highest level of performance since September 2018 (61.8 percent),” says Fiore. A New Orders Index above 52.5 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

Of the 18 manufacturing industries, the 13 that reported growth in new orders in July — in the following order — are: Wood Products; Furniture & Related Products; Primary Metals; Plastics & Rubber Products; Chemical Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Fabricated Metal Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Transportation Equipment; Computer & Electronic Products; and Machinery. The two industries reporting a decline in new orders in July are: Textile Mills; and Paper Products.

New Orders % Higher % Same % Lower Net Index
Jul 2020 41.1 40.0 18.8 +22.3 61.5
Jun 2020 37.3 38.9 23.9 +13.4 56.4
May 2020 21.2 26.0 52.9 -31.7 31.8
Apr 2020 17.7 22.7 59.7 -42.0 27.1

Production

The Production Index registered 62.1 percent in July, up 4.8 percentage points from 57.3 percent in June, indicating growth for the second consecutive month. “Five of the top six industries expanded strongly and none contracted, a marked improvement from June. The index achieved its highest level of performance since August 2018, when it registered 63.1 percent,” says Fiore. An index above 51.7 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The 16 industries reporting growth in production during the month of July — listed in order — are: Primary Metals; Wood Products; Textile Mills; Furniture & Related Products; Printing & Related Support Activities; Plastics & Rubber Products; Chemical Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Computer & Electronic Products; Nonmetallic Mineral Products; Fabricated Metal Products; Paper Products; Machinery; Transportation Equipment; and Miscellaneous Manufacturing. No industries reported a decrease in production in July.

Production % Higher % Same % Lower Net Index
Jul 2020 41.6 39.9 18.5 +23.1 62.1
Jun 2020 39.2 37.7 23.1 +16.1 57.3
May 2020 20.7 27.8 51.5 -30.8 33.2
Apr 2020 18.6 21.2 60.2 -41.6 27.5

Employment

ISM®’s Employment Index registered 44.3 percent in July, 2.2 percentage points higher than the June reading of 42.1 percent. “This is the 12th consecutive month of employment contraction, at a slower rate compared to June. Only one of the six big industry sectors experienced expansion, as factories were able to achieve significant gains in output with a reduced labor pool. Long-term labor market growth remains uncertain, but strong new-order levels and an expanding backlog signify potential strength for the rest of the third quarter,” says Fiore. An Employment Index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, the five industries to report employment growth in July are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Furniture & Related Products; Plastics & Rubber Products; and Computer & Electronic Products. The 10 industries reporting a decrease in employment in July, in the following order, are: Transportation Equipment; Paper Products; Electrical Equipment, Appliances & Components; Primary Metals; Textile Mills; Petroleum & Coal Products; Chemical Products; Miscellaneous Manufacturing; Fabricated Metal Products; and Machinery.

Employment % Higher % Same % Lower Net Index
Jul 2020 15.3 59.9 24.7 -9.4 44.3
Jun 2020 14.6 58.8 26.6 -12.0 42.1
May 2020 7.6 51.2 41.1 -33.5 32.1
Apr 2020 2.8 50.7 46.6 -43.8 27.5

Supplier Deliveries*

The delivery performance of suppliers to manufacturing organizations was slower in July, as the Supplier Deliveries Index registered 55.8 percent. This is 1.1 percentage points lower than the 56.9 percent reported in June. “Suppliers continue to struggle to deliver, although at a slower rate compared to June. Plant interruptions, transportation challenges and continuing difficulties in supplier labor markets are still factors. The Supplier Delivery Index continues to reflect a healthier supply/demand balance compared to spring and early summer,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

Twelve of 18 industries reported slower supplier deliveries in July, listed in the following order: Textile Mills; Petroleum & Coal Products; Nonmetallic Mineral Products; Wood Products; Miscellaneous Manufacturing; Furniture & Related Products; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Machinery; Chemical Products; and Fabricated Metal Products. The two industries reporting faster supplier deliveries in July are: Primary Metals; and Electrical Equipment, Appliances & Components.

Supplier Deliveries % Slower % Same % Faster Net Index
Jul 2020 22.2 67.4 10.5 +11.7 55.8
Jun 2020 22.9 68.1 9.0 +13.9 56.9
May 2020 41.0 54.2 4.9 +36.1 68.0
Apr 2020 55.8 40.3 3.9 +51.9 76.0

Inventories

The Inventories Index registered 47 percent in July, 3.5 percentage points lower than the 50.5 percent reported for June. Inventories contracted after two consecutive months of expansion. “Inventory levels were impacted by increases in production output and restrained by continuing supplier difficulties. Panelists also indicated restraint in increasing inventories due to uncertainty in overall future market demand,” says Fiore. An Inventories Index greater than 44.3 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The three industries reporting higher inventories in July are: Food, Beverage & Tobacco Products; Paper Products; and Miscellaneous Manufacturing. The nine industries reporting a decrease in inventories in July — listed in order — are: Primary Metals; Nonmetallic Mineral Products; Fabricated Metal Products; Machinery; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Chemical Products; Computer & Electronic Products; and Transportation Equipment. Six industries reported no change in inventories in July compared to June.

Inventories % Higher % Same % Lower Net Index
Jul 2020 21.2 51.6 27.2 -6.0 47.0
Jun 2020 22.9 54.1 23.0 -0.1 50.5
May 2020 29.0 42.0 29.0 0.0 50.4
Apr 2020 31.7 37.2 31.2 +0.5 49.7

Customers' Inventories*

ISM®’s Customers’ Inventories Index registered 41.6 percent in July, 3 percentage points lower than the 44.6 percent reported for June, indicating that customers’ inventory levels were considered too low. “Customers’ inventories are too low for the 46th consecutive month and moved further into ‘too low’ territory in July, a positive for future production,” says Fiore.

Of the 18 industries, the two reporting higher customers’ inventories in July are: Petroleum & Coal Products; and Furniture & Related Products. The 13 industries reporting customers’ inventories as too low during July — listed in order — are: Wood Products; Fabricated Metal Products; Paper Products; Plastics & Rubber Products; Primary Metals; Food, Beverage & Tobacco Products; Machinery; Textile Mills; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Chemical Products; Transportation Equipment; and Computer & Electronic Products.

Customers' Inventories % Reporting % Too High % About Right % Too Low Net Index
Jul 2020 74 12.6 58.0 29.4 -16.8 41.6
Jun 2020 74 15.4 58.4 26.1 -10.7 44.6
May 2020 75 21.8 48.7 29.5 -7.7 46.2
Apr 2020 73 21.7 54.2 24.1 -2.4 48.8

Prices*

The ISM® Prices Index registered 53.2 percent, 1.9 percentage points higher than the June reading of 51.3 percent, indicating raw materials prices increased for the second consecutive month. “Price increases were driven primarily by plastics, lumber, aluminum, copper and petroleum products. Price growth remains at a stable supplier/buyer relationship,” says Fiore. A Prices Index above 52.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

The 10 industries reporting paying increased prices for raw materials in July — listed in order — are: Textile Mills; Primary Metals; Wood Products; Plastics & Rubber Products; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Chemical Products; Miscellaneous Manufacturing; and Machinery. The two industries reporting a decrease in prices for raw materials in July are: Transportation Equipment; and Fabricated Metal Products. Six industries reported no change in prices in July compared to June.

Prices % Higher % Same % Lower Net Index
Jul 2020 22.7 61.2 16.2 +6.5 53.2
Jun 2020 18.5 65.6 15.9 +2.6 51.3
May 2020 13.9 53.8 32.3 -18.4 40.8
Apr 2020 10.0 50.6 39.4 -29.4 35.3

Backlog of Orders*

ISM®’s Backlog of Orders Index registered 51.8 percent in July, a 6.5-percentage point increase compared to the 45.3 percent reported in June, indicating order backlogs expanded after four consecutive months of contraction. “The return of backlog expansion is a positive for the future. Backlog expansion indicates that new-order intake was sufficient to offset production output and grow backlog during the period. Three of the six big industry sectors’ backlogs expanded, an improvement from June. The index achieved its highest level of expansion since April 2019 (53.9 percent),” says Fiore.

The 10 industries reporting growth in order backlogs in July, in the following order, are: Wood Products; Plastics & Rubber Products; Primary Metals; Nonmetallic Mineral Products; Paper Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Chemical Products; Machinery; and Electrical Equipment, Appliances & Components. In July, four industries reported lower backlogs: Textile Mills; Transportation Equipment; Computer & Electronic Products; and Miscellaneous Manufacturing.

Backlog of Orders % Reporting % Higher % Same % Lower Net Index
Jul 2020 87 20.3 63.0 16.7 +3.6 51.8
Jun 2020 89 19.4 51.9 28.7 -9.3 45.3
May 2020 91 18.2 40.1 41.8 -23.6 38.2
Apr 2020 91 20.9 33.7 45.4 -24.5 37.8

New Export Orders*

ISM®’s New Export Orders Index registered 50.4 percent in July, up 2.8 percentage points compared to the June reading of 47.6 percent. “The New Export Orders Index expanded modestly after four straight months of contraction, with two of the six big industry sectors expanding. New export orders were a positive factor to the growth in new orders,” says Fiore.

The six industries reporting growth in new export orders in July — in the following order — are: Furniture & Related Products; Wood Products; Computer & Electronic Products; Plastics & Rubber Products; Chemical Products; and Miscellaneous Manufacturing. The four industries reporting a decrease in new export orders in July are: Nonmetallic Mineral Products; Fabricated Metal Products; Paper Products; and Machinery. Seven industries reported no change in new export orders in July compared to June.

New Export Orders % Reporting % Higher % Same % Lower Net Index
Jul 2020 74 14.8 71.4 13.9 +0.9 50.4
Jun 2020 75 13.8 67.7 18.5 -4.7 47.6
May 2020 77 14.3 50.6 35.2 -20.9 39.5
Apr 2020 79 12.0 46.5 41.5 -29.5 35.3

Imports*

ISM®’s Imports Index registered 53.1 percent in July, up 4.3 percentage points compared to the 48.8 percent reported for June. “Imports expanded after five consecutive months of contraction, reflecting increased U.S. demand. The index reached its highest level of expansion since February 2019, when it registered 55.3 percent,” says Fiore.

The 11 industries reporting growth in imports in July — in the following order — are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Wood Products; Textile Mills; Fabricated Metal Products; Furniture & Related Products; Plastics & Rubber Products; Chemical Products; Electrical Equipment, Appliances & Components; Machinery; and Food, Beverage & Tobacco Products. The two industries reporting a decrease in imports in July are: Primary Metals; and Miscellaneous Manufacturing.

Imports % Reporting % Higher % Same % Lower Net Index
Jul 2020 85 17.4 71.4 11.2 +6.2 53.1
Jun 2020 83 15.3 67.1 17.6 -2.3 48.8
May 2020 84 13.6 55.4 31.0 -17.4 41.3
Apr 2020 86 20.4 44.6 35.1 -14.7 42.7
*The Supplier Deliveries, Customers' Inventories, Prices, Backlog of Orders, New Export Orders and Imports indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy

Average commitment lead time for Capital Expenditures increased by four days in July to 136 days. Average lead time for Production Materials increased by three days to 66 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies decreased by one day to 35 days.

Percent Reporting

Capital Expenditures Hand-to-Mouth 30 Days 60 Days 90 Days 6 Months 1 Year + Average Days
Jul 2020 24 7 8 18 24 19 136
Jun 2020 25 7 9 17 24 18 132
May 2020 24 7 10 16 23 20 137
Apr 2020 26 6 11 17 20 20 133

Percent Reporting

Production Materials Hand-to-Mouth 30 Days 60 Days 90 Days 6 Months 1 Year + Average Days
Jul 2020 10 35 25 20 8 2 66
Jun 2020 11 37 25 18 7 2 63
May 2020 12 34 28 15 9 2 65
Apr 2020 14 33 23 20 8 2 64

Percent Reporting

MRO Supplies Hand-to-Mouth 30 Days 60 Days 90 Days 6 Months 1 Year + Average Days
Jul 2020 38 35 16 8 3 0 35
Jun 2020 38 37 15 7 2 1 36
May 2020 39 31 17 10 3 0 36
Apr 2020 39 32 14 10 4 1 40

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