The Institute of Supply Management’s Index moved down 0.5 points on month, (m/m) to 51.2 for July 2019. This value is an encouraging sign for the manufacturing sector. The index has been greater than 50, (>50 = expansion) for thirty-five consecutive months. The new orders sub-index scored a 50.8. 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.
Figure 1 breaks down the detail of the composite index and sub-indexes. The composite index score for July was 51.2. One year ago, the composite index was a strong at 58.1.
Figure 2 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 51.7, down 12.4% 3 months year on year (y/y). When examined on a 12MMA y/y comparison, the index decreased by 6.1% y/y.
Breaking down the sub-indexes for the monthly numbers: Inventory, (not seasonally adjusted) sub-index moved-up 0.4 points m/m to 49.5 in July. The production sub-index decreased by 3.3 points to 50.8. The employment index moved up down by 2.8 of a point to 51.7. The order backlogs which also decreased by 4.3 points to 43.1.
Of the 18 manufacturing industries, nine reported growth in July, in the following order: Wood Products; Printing & Related Support Activities; Furniture & Related Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Computer & Electronic Products; Textile Mills; Petroleum & Coal Products; and Chemical Products. The nine industries reporting contraction in July — in the following order — are: Apparel, Leather & Allied Products; Fabricated Metal Products; Primary Metals; Nonmetallic Mineral Products; Transportation Equipment; Paper Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; and Machinery.
An Institute for Supply Management respondent stated, “There is a drop in demand for steel products, which has had a major impact on steel prices and the domestic scrap market.” (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.