July 1, 2024
The Institute for Supply Management’s index of conditions in the manufacturing sector declined 0.2 point in June to 48.5 after having fallen 0.5 point in May While 50.0 is the breakeven point for the manufacturing sector, a level of 42,5 is generally regarded as the breakeven point for the economy as a whole. A level of 48.5 is associated with a GDP increase of 1.7%.
The ISM organization does a similar survey for the services sector. The ISM index of conditions in the service sector for June will be released on Wednesday. July 3.
The Institute for Supply Management Chair for the Survey Committee Timothy Fiore said, “After breaking a 16-month streak of contraction by expanding in March, the manufacturing sector has contracted the last three months, and at a faster rate in June. None of five subindexes that directly factor into the Manufacturing PMI were in expansion territory, down from two in May. The New Orders Index remained in contraction but moved upward in June. Of the six biggest manufacturing industries, only one (Chemical Products) registered growth in June,” s
Comments from respondents include the following:
- “High volume of customer orders.” [Chemical Products]
- “Customers continue to cut orders with short notice, causing a ripple effect throughout lower-tier suppliers.” [Transportation Equipment]
- “Consumer demand and inventories are no longer stable at retail and food service establishments.” [Food, Beverage & Tobacco Products]
- “While orders are still steady, inventory from the previous month is enough to satisfy current- and near-term commitments.” [Computer & Electronic Products]
- “Customers ordering more to create buffer stocks (in case of) future shortages.” [Electrical Equipment, Appliances & Components]
- “Order levels in two of our main divisions are indicating weak demand, and now we must work to reduce inventory levels.” [Fabricated Metal Products]
- “Sales backlog is decreasing. We have furloughed a portion of our workforce as a result.” [Machinery]
- “The level of production is lower due to decreased demand for products.” [Miscellaneous Manufacturing]
- “Elevated financing costs have dampened demand for residential investment. We have reduced inventories of production components.” [Wood Products]
- “Orders have increased slightly due to seasonal restocking.” [Plastics & Rubber Products]
The orders component rose 3.9 points in June to 49.3 after falling 3.7 points in May, Basically, they are bouncing around close to the breakeven level of 50.0. . Fiore noted that “Of the six largest manufacturing sectors, two (Computer & Electronic Products; and Chemical Products) reported increased new orders. Panelists’ comments noted a continued level of uncertainty and cautiousness as new order levels and customer inventory accounts continue to underperform,”
The production component fell 1.7 points in June to 48.5 after declining 1.1 points in May.The March reading was the fastest pace of production since the summer of 2022. An index reading above 52.2 is generally consistent with an increase in industrial production.Thus, industrial production is likely to decline in June.
The delivery performance of suppliers to manufacturing organizations rose 0.9 point in June to 49.8 after being unchanged in May.. This means that supplier deliveries were essentially unchanged in June. Fiore noted that, ““On a consistent basis in 2024, suppliers have supported customers adequately by delivering faster, making more reliable promises and slowly reducing lead times. Panelists continue to predict faster supplier deliveries for the rest of the year,”
The employment index fell 1.8 points in June to 48.8 after having risen 1.9 points in May. Fiore noted that, “The index indicated employment contracted after an expansion in May which broke a seven-month streak of contraction. Of the six big manufacturing sectors, only one (Fabricated Metal Products) expanded employment in June. Many Business Survey Committee respondents’ companies are continuing to reduce head counts through layoffs, attrition and hiring freezes. Panelists’ comments in June indicated a marginal decline in staff reductions compared to May, supported by the approximately 1.3-to-1 ratio of hiring versus head-count reduction comments,”
The backlog of orders fell 0.7 point in June to 41.7 after declining 3.0 points in May.. Fiore noted that, “The index remained in contraction in April, as new order rates and production output were insufficient to allow backlogs to grow.”
Customer inventory levels fell 0.9 point in June to 47.4 after having risen 0.6 point in May Fiore said that, “Customers’ inventory levels decreased at a faster rate in June, with the index moving downward in ‘about right’ territory. Panelists report their companies’ customers have decreased amounts of their products in inventory compared to the previous month, which is considered neutral for future new orders and production,”
With an increase in the orders index in the orders index and a decline in customer inventories the ratio of orders to inventories rose 0.1 in June to 1.0. The 1.0 level for this index suggests that production could be relatively unchanged in the months ahead.
The prices paid component shed 4.9 points in June to 52.1 after declining 3.9 points in May Fiore noted that, ““The Prices Index indicated expansion in June, but at slower rate compared to the previous month. Commodity prices continue to be volatile, especially fuel, natural gas, aluminum and plastics. Steel prices are approaching long-term historical lows. Twenty percent of companies reported higher prices in June, compared to 26 percent in May, a clear improvement,” A price index above 52.8 is generally consistent with the Bureau of Labor Statistics PPI index for Intermediate Materials.
We expect GDP to climb at roughly a 2.6% pace in the second quarter followed by 1.5-2.0% growth in the final two quarters of the year.
Stephen Slifer
NumberNomics
Charleston, S.C.
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