The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) said that manufacturing activity expanded for its fifth straight month in July, albeit with a slight easing for the month. The composite index edged down from 53.2 in June to 52.6 in July, but more importantly, this report suggests that manufacturers are doing better today than the contracting levels of activity seen in the October to February time frame. The boost in sentiment reported more recently has come from relatively strong expansions in new orders (down from 57.0 to 56.9) and production (up from 54.7 to 55.4), with the latter growing at its fastest pace in 12 months. Indeed, demand and output have now expanded for seven consecutive months, which is encouraging. Exports (down from 53.5 to 52.5) also slowed a bit in July but have expanded for five consecutive months, according to ISM.
Such news suggests some stabilization in the sector, which is encouraging. Yet, to be fair, this does not mean that the sector has totally emerged from its challenges. Hiring (down from 50.4 to 49.4) slipped back into negative territory in July, with the employment index contracting in eight of the past ten months. As such, it is clear that manufacturers remain cautious enough in their outlook to be hesitant about adding new workers, at least for now. With continued progress, we would expect for firms to begin to add to their workforces moving forward, but that has not happened yet. Look for better job growth in the months to come, particularly if manufacturers are truly seeing better demand and production growth.
Inventories (up from 48.5 to 49.5) were also negative for the 13th straight month, albeit at a slower pace of decline in this release. The silver lining is that this could provide a stimulative effect for growth in the coming months, as manufacturers will need to increase production to meet additional demand, with stockpiles quite low.