U.S. Data Pulse: ISM: Manufacturing Activity Decelerated in June

Research evidence excerpt

U.S. Data Pulse: ISM: Manufacturing Activity Decelerated in June

UpdateM

Manufacturing Expansion Continued at a Slower Pace

Manufacturing activity decelerated in June, according to the ISM Manufacturing Index

(PMI). The ISM Manufacturing index fell to 53.3 from 54.0, below the consensus of 53.8

and our forecast of 54.3. Deceleration in the supplier deliveries index and the production

index contributed to most of the decrease.

Demand and production: The production index was 52.2, down 2.1 from 54.3 in May, still

marking an eighth consecutive month of expansion. The new orders index fell 0.8 points

to 56. Although both indices decelerated, we still think they signal resilient and strong

supply and demand given their strong readings in the prior months. New orders less

inventories—a forward-looking proxy for production—also pointed to improvement. The

gap between the two was 4.6 in June, down from 6.9 in May and still meaningfully above

0. A wider gap is usually considered positive for future production. June was the seventh

consecutive month that the gap has been meaningfully positive, which we take as a

continuing positive signal for future production.

Labor: Employment improved but remained soft. The employment index increased 1.1

points to 49.7, marking more than two years of contraction. This suggests firms remain

cautious about hiring despite continued expansion in activity. Industries reporting

employment growth include Printing & Related Support Activities; Paper Products;

Primary Metals; Electrical Equipment, Appliances & Components; Plastics & Rubber

Products; Machinery; Miscellaneous Manufacturing; Transportation Equipment; and

Chemical Products. We find that a rise in the employment index usually is associated with