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Manufacturing Growth Accelerates in July

Bill Koenig
By Bill Koenig Senior Editor, SME Media

Manufacturing expansion accelerated in July as new orders and production rebounded, the Institute for Supply Management said today.

The Tempe, Ariz.-based group’s manufacturing index was 54.2 percent last month, according to a monthly report. July marked the second consecutive month of economic expansion for manufacturing. The PMI was up from 52.6 percent in June.

Manufacturing is recovering from factory shutdowns stemming from the novel coronavirus (COVID-19).

“We’re growing again from the historical low levels we saw in April” when the impact of COVID-19 peaked, said Timothy R. Fiore, chair of ISM’s Manufacturing Business Survey Committee.

Contributing to growth was an increase in new orders while output also improved, Fiore said.

“It was very positive on the demand side,” Fiore said on a conference call.

The index is based on a survey of 350 manufacturing supply executives in 18 industries. The PMI is considered a leading economic indicator and a barometer of where the economy is headed. A PMI below 50 percent indicates a contracting manufacturing economy. Above 50 percent shows expansion.

The PMI has averaged 48.6 percent the past 12 months. That includes a low of 41.5 percent in April when many factories closed to try to restrict the spread of the coronavirus.  

Despite the PMI’s improvement, questions remain about the pace of economic improvement for manufacturing.

“I don’t think we’re looking at a very dramatic recovery,” Fiore said. “It’s very difficult to predict what we’re going to have in the future.” He said the PMI may remain in the 50 percent to 55 percent range.

In July, 13 of 18 industries reported economic growth. They included wood products, furniture, primary metals and miscellaneous manufacturing. Three industries reported economic contraction: transportation equipment, machinery and fabricated metal products.

The transportation category this year has been affected by temporary shutdowns of auto and aerospace factories because of COVID-19.

In addition, aerospace also has been hit by sharply lower demand for air travel, resulting in cancellations of aircraft orders. For example, aircraft maker Boeing Co. is cutting jobs and slowing production of planes.

ISM said its New Orders index surged to 61.5 percent last month, up from 56.4 percent in June. ISM said 13 industries reported an increase in new orders while only two reported a decline. The New Orders Index was 27.1 percent in April.

The group’s Production Index rose to 62.1 percent in July, up from 57.3 percent the month before. ISM said 16 industries reported a gain in output and none reported a decline. The Production Index was 27.5 percent in April.

The group’s Employment Index registered at 44.3 percent in July. While showing a decline in employment, it was an improvement from June’s 42.1 percent. Of 18 industries, five reported job gains, with 10 reporting job cuts. The Employment Index had a low of 27.5 percent in April.

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