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Manufacturing Returns to Economic Expansion in June

Bill Koenig
By Bill Koenig Senior Editor, SME Media

Manufacturing rebounded in June, the best positive change in almost 40 years, helped by improved demand and production, the Institute for Supply Management said today.

The Tempe, Ariz.-based group’s manufacturing index, known as the PMI, surged to 52.6 percent last month, up from 43.1 percent the month before. Manufacturing is trying to recover from shutdowns spurred by the novel coronavirus (COVID-19).

“I feel good the demand side has recovered somewhat,” Tim Fiore, chair of ISM’s Manufacturing Business Survey Committee, said on a conference call. “We had really low points in April and May.”

The PMI hasn't seen such an upward swing since August 1980, Fiore said. COVID-19 hammered manufacturing beginning in March as states issued stay at home orders and shut down the economy to slow the spread of the virus.

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 shrinking manufacturing economy, while above 50 percent shows expansion.

June snapped a three-month streak of contraction in manufacturing. The PMI has averaged 48.3 percent the past 12 months, including a low of 41.5 percent in April.

In June, 13 industries reported economic expansion, including textile mills, wood products, furniture and miscellaneous manufacturing. Four industries reported economic contraction: transportation equipment, fabricated metal products, primary metals and machinery.

The group’s New Orders Index surged to 56.4 percent last month, up from 31.8 percent in May. Eleven industries reported an increase in orders. Two, fabricated metal products and transportation equipment, reported a decline.

ISM’s Production Index registered at 57.3 percent, an improvement from 33.2 percent in May. Thirteen industries said they boosted output, with three reporting production declines.

The Employment Index remained in contraction territory at 42.1 percent in June. That was an improvement from May’s 32.1 percent. Five industries reported adding jobs while 11 said employment declined.

Fiore said manufacturing still faces major challenges.

“Oil and gas markets still very weak,” he said. “Aerospace is really hurt, and it’s going to be hurt for two or three years.”

COVID-19, Fiore said, “is a real disruptive event, not seen in my lifetime.”

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