The Institute of Supply Management’s Index moved down 0.4 points on month, (m/m) to 51.7 for June 2019. This value is an encouraging sign for the manufacturing sector.  The index has been greater than 50, (>50 = expansion) for thirty-three consecutive months. The new orders sub-index scored a 52.7.  Overall, the ISM manufacturing index is strong and fundamentals remain favorable as the global economy strengthens and the U.S. dollar depreciates.

The ISM manufacturing index is based on surveys of 400 purchasing managers in 20 industries. The survey is a diffusion index calculated as a percent of responses. A value of 50 is neutral, while less than 50 is contracting and greater than 50 is expansionary.

ism-fig1Figure 1 breaks down the detail of the composite index and sub-indexes. The composite index score for June was 51.7. One year ago, the composite index was a strong at 60.2.

Figure 2ism-fig2 shows the history of the ISM manufacturing index from 2003 to present.  On a 3 month moving average, (3MMA) basis, the index posted a value 52.2, down 11.1% 3 months year on year (y/y).  When examined on a 12MMA y/y comparison, the index decreased by 4.9% y/y.

Breaking down the sub-indexes for the monthly numbers: Inventory, (not seasonally adjusted) sub-index moved-down 1.8 points m/m to 49.1 in June. The production sub-index increased by 2.8 points to 54.1. The employment index moved up slightly by 0.8 of a point to 54.5. The order backlogs which also increased slightly by 0.2 of a point to 47.4.

Of the 18 manufacturing industries, 12 reported growth in June, in the following order: Furniture & Related Products; Printing & Related Support Activities; Textile Mills; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Chemical Products; Computer & Electronic Products; Paper Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; and Machinery. The five industries reporting contraction in June are: Apparel, Leather & Allied Products; Primary Metals; Wood Products; Transportation Equipment; and Fabricated Metal Products.

An Institute for Supply Management respondent stated, “Tariffs continue to adversely impact decisions and forecasting. Our increasing fear is that current trends will weaken the global economy, influencing our ability to grow in 2020 and beyond.” (Fabricated Metal Products)

At Gerdau we closely monitor the ISM manufacturing index since it is an excellent barometer of the present strength as well as a window on the likely short-run future of US manufacturing.