| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Index | 47.3 | 46.6 to 48.5 | 46.0 | 46.9 |
Highlights
US manufacturing activity was in contraction territory for the eighth straight month in June as firms lowered production and used more layoffs to manage head counts amid lingering uncertainty over the timing of recovery in demand, data from the Institute for Supply Management released Monday showed.
The weakness spread across the board in the June report, which prompted the ISM to stop providing the near-term outlook for the main index, which had been a cautiously optimistic range of 47 to 51.
The sector index compiled by the ISM, which shows general direction, fell 0.9 percentage point to 46.0 in June after falling 0.2 point to 46.9 in May, rising 0.8 point to 47.1 in April, falling 1.4 points to 46.3 in March and edging up 0.3 point to 47.7 in February. The latest figure is far below the median economist forecast of 47.3.
Regarding the overall economy, this figure indicates a seventh month of contraction after a 30-month period of expansion. The ISM's manufacturing PMI reading above 48.7, over time, generally indicates an expansion of the overall economy.
The index has been on a gradual downtrend since June 2022. It remains the lowest since May 2020, when the index at 43.5 was recovering from a recent low of 41.8 the previous month during the first wave of the pandemic. The all-time low is 29.4 hit in May 1980.
"Demand remains weak, production is slowing due to lack of work, and suppliers have capacity," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement."There are signs of more employment reduction actions in the near term."
"The June composite index reading reflects companies continuing to manage outputs down as softness continues and optimism about the second half of 2023 weakens," he said, downgrading his view. Last month, he said that companies were"continuing to manage outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period."
Fiore told reporters that the uncertainty is continuing but that he is not saying the possibility of recession in the U.S. is higher.
Asked about his latest range for the ISM manufacturing sector main index, he replied,"I think I've just decided not to give any guidance any more because I don't think I have been that accurate in these guidance for the last six months."
It would be"concerning" if the index were headed toward 45 and below and if there were no new demand, he added.
Last month he told reporters that some firms were concerned about a possible recession in 2024 but that he was sticking to his recent outlook that surveyed manufacturing firms are operating in a 47 to 51 range in the index.
That possible recession timing suggests that the current slowdown will be a soft-landing, which may actually be more painful than a hard-landing because people don't know when they will hit the bottom and thus cannot plan for future orders or employment, Fiore said Monday.
"Manufacturing inventory levels are extremely low, which kind of indicates that panels are getting ready to lower output and it's across the board," Fiore said.
"I think the panelists (in the ISM survey) are still uncertain where the bottom is… and have no idea where the recovery begins," he said."The panelists are probably saying that we are ending the first half (of 2023) and we are probably going to stay in this position at least until Q3 of 2023."
Among the five subindexes that directly factor into the manufacturing PMI, the new orders Index contracted for the 10th consecutive month but at a slower pace. It rose 3.0 points to 45.6 in June after plunging 3.1 points to a four-month low of 42.6 in May, edging up 0.8 point to 45.7 in April and falling 2.7 points to 44.3 in March.
"The slowing U.S. economy is causing the business forecast to be revised/reduced for the remainder of 2023," a firm in the computer and electronic products category told the ISM."Customers are less inclined to purchase far in advance."
A fabricated metal producer said,"North American demand stabilizing, but European markets showing slowing in the second half of 2023 and 2024."
The production index reading of 46.7 is a 4.4-percentage point decrease from 51.1 in May, when it rose 2.2 points from 48.9 in April. It is the lowest since 34.2 in May 2020.
The employment index slipped back into contraction, registering 48.1, down 3.3 points from 51.4 in May, when it rose 1.2 points, and popping into expansion territory for the first time in four months in April at 50.2 from 46.9 in March.
"Panelists' companies reduced production and began using layoffs to manage head counts, to a greater extent than in prior months, amid mixed sentiment about when significant growth will return," Fiore said, adding that this trend is expected to continue in July.
The delivery performance of suppliers to manufacturing organizations was faster for the ninth straight month amid improved supply chains. The supplier deliveries index at 45.7 is 2.2 points higher than the 43.5 recorded in May, when it fell 1.1 points. The May figure of 43.5 was the lowest since 43.2 in March 2009.
The manufacturing inventories index dropped 1.8 points to 44.0 in June from the May reading of 45.8. It is the lowest since 43.9 in January 2014.
Among other subindexes, the customers' inventories index plunged by 5.2 points to a"too low" level of 46.2 in June (an eight-month low) from a"too High" level of 51.4 in May. It is the only bright spot in the June report as it is positive for future production, Fiore noted. The May figure was the highest in more than six years since September 2016, when it registered 52.5. The all-time high is 56.0 hit in January 2001.
The prices index stood at a six-month low of 41.8 in June, down 2.4 points from 44.2 in May, when it fell 9.0 points from 53.2 in April.
The backlog orders index rose 1.2 points to 38.7 in June. It followed a 5.6-point drop to 37.5 in May, which was the lowest since the Great Recession (33.6 in February 2009).
The new export orders index slipped into contraction, falling 2.7 points to 47.3 in June after edging up 0.2 point to the neutral level of 50.0 in May and rising 2.2 points to 49.8 in April.
The manufacturing sector is in the sixth contracting phase in the past 20 years. Previously, the ISM manufacturing PMI posted contraction just before the pandemic hit the global economy, from August to December 2019 and from March to May 2020. The deepest slump in the past two decades was recorded from September 2008 until July 2009 (the bottom was 34.5 in December 2008) triggered by the U.S. credit crisis.
The weakness spread across the board in the June report, which prompted the ISM to stop providing the near-term outlook for the main index, which had been a cautiously optimistic range of 47 to 51.
The sector index compiled by the ISM, which shows general direction, fell 0.9 percentage point to 46.0 in June after falling 0.2 point to 46.9 in May, rising 0.8 point to 47.1 in April, falling 1.4 points to 46.3 in March and edging up 0.3 point to 47.7 in February. The latest figure is far below the median economist forecast of 47.3.
Regarding the overall economy, this figure indicates a seventh month of contraction after a 30-month period of expansion. The ISM's manufacturing PMI reading above 48.7, over time, generally indicates an expansion of the overall economy.
The index has been on a gradual downtrend since June 2022. It remains the lowest since May 2020, when the index at 43.5 was recovering from a recent low of 41.8 the previous month during the first wave of the pandemic. The all-time low is 29.4 hit in May 1980.
"Demand remains weak, production is slowing due to lack of work, and suppliers have capacity," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement."There are signs of more employment reduction actions in the near term."
"The June composite index reading reflects companies continuing to manage outputs down as softness continues and optimism about the second half of 2023 weakens," he said, downgrading his view. Last month, he said that companies were"continuing to manage outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period."
Fiore told reporters that the uncertainty is continuing but that he is not saying the possibility of recession in the U.S. is higher.
Asked about his latest range for the ISM manufacturing sector main index, he replied,"I think I've just decided not to give any guidance any more because I don't think I have been that accurate in these guidance for the last six months."
It would be"concerning" if the index were headed toward 45 and below and if there were no new demand, he added.
Last month he told reporters that some firms were concerned about a possible recession in 2024 but that he was sticking to his recent outlook that surveyed manufacturing firms are operating in a 47 to 51 range in the index.
That possible recession timing suggests that the current slowdown will be a soft-landing, which may actually be more painful than a hard-landing because people don't know when they will hit the bottom and thus cannot plan for future orders or employment, Fiore said Monday.
"Manufacturing inventory levels are extremely low, which kind of indicates that panels are getting ready to lower output and it's across the board," Fiore said.
"I think the panelists (in the ISM survey) are still uncertain where the bottom is… and have no idea where the recovery begins," he said."The panelists are probably saying that we are ending the first half (of 2023) and we are probably going to stay in this position at least until Q3 of 2023."
Among the five subindexes that directly factor into the manufacturing PMI, the new orders Index contracted for the 10th consecutive month but at a slower pace. It rose 3.0 points to 45.6 in June after plunging 3.1 points to a four-month low of 42.6 in May, edging up 0.8 point to 45.7 in April and falling 2.7 points to 44.3 in March.
"The slowing U.S. economy is causing the business forecast to be revised/reduced for the remainder of 2023," a firm in the computer and electronic products category told the ISM."Customers are less inclined to purchase far in advance."
A fabricated metal producer said,"North American demand stabilizing, but European markets showing slowing in the second half of 2023 and 2024."
The production index reading of 46.7 is a 4.4-percentage point decrease from 51.1 in May, when it rose 2.2 points from 48.9 in April. It is the lowest since 34.2 in May 2020.
The employment index slipped back into contraction, registering 48.1, down 3.3 points from 51.4 in May, when it rose 1.2 points, and popping into expansion territory for the first time in four months in April at 50.2 from 46.9 in March.
"Panelists' companies reduced production and began using layoffs to manage head counts, to a greater extent than in prior months, amid mixed sentiment about when significant growth will return," Fiore said, adding that this trend is expected to continue in July.
The delivery performance of suppliers to manufacturing organizations was faster for the ninth straight month amid improved supply chains. The supplier deliveries index at 45.7 is 2.2 points higher than the 43.5 recorded in May, when it fell 1.1 points. The May figure of 43.5 was the lowest since 43.2 in March 2009.
The manufacturing inventories index dropped 1.8 points to 44.0 in June from the May reading of 45.8. It is the lowest since 43.9 in January 2014.
Among other subindexes, the customers' inventories index plunged by 5.2 points to a"too low" level of 46.2 in June (an eight-month low) from a"too High" level of 51.4 in May. It is the only bright spot in the June report as it is positive for future production, Fiore noted. The May figure was the highest in more than six years since September 2016, when it registered 52.5. The all-time high is 56.0 hit in January 2001.
The prices index stood at a six-month low of 41.8 in June, down 2.4 points from 44.2 in May, when it fell 9.0 points from 53.2 in April.
The backlog orders index rose 1.2 points to 38.7 in June. It followed a 5.6-point drop to 37.5 in May, which was the lowest since the Great Recession (33.6 in February 2009).
The new export orders index slipped into contraction, falling 2.7 points to 47.3 in June after edging up 0.2 point to the neutral level of 50.0 in May and rising 2.2 points to 49.8 in April.
The manufacturing sector is in the sixth contracting phase in the past 20 years. Previously, the ISM manufacturing PMI posted contraction just before the pandemic hit the global economy, from August to December 2019 and from March to May 2020. The deepest slump in the past two decades was recorded from September 2008 until July 2009 (the bottom was 34.5 in December 2008) triggered by the U.S. credit crisis.
Market Consensus Before Announcement
The ISM manufacturing index has been in contraction the last seven months. June's consensus is 47.3 which would be little changed from May's 46.9.
Definition
The manufacturing composite index from the Institute for Supply Management is a diffusion index calculated from five of the eleven sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms nationwide. The survey queries purchasing managers about the general direction (tracked in volumes) of production, new orders, order backlogs, their own inventories, customer inventories, employment, supplier deliveries, exports, and imports. Data on changes in input prices (prices paid) are also tracked. The five components of the composite index are new orders, production, employment, supplier deliveries, and inventories (their own, not customer inventories). The five components are equally weighted. The questions are qualitative rather than quantitative; that is, they ask about the general direction rather than the specific level of activity. Each question is adjusted into a diffusion index which is calculated by adding the percentage of positive responses to one-half of the unchanged responses.
Description
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM manufacturing index, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
The ISM manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provide insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data. As a result, the bond market is highly sensitive to this report.
Importance
The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is enhanced by the fact that it is available very early in the month and is not subject to revision.
Interpretation
The bond market will rally (fall) when the ISM manufacturing index is weaker (stronger) than expected. Equity markets prefer lower interest rates and could rally with the bond market. However, a healthy manufacturing sector, indicated by rising ISM index levels, bodes well for corporate earnings and is bullish for the stock market.
The level of the ISM manufacturing index indicates whether manufacturing and the overall economy are growing or declining. Historically, readings of 50 percent or above are associated with an expanding manufacturing sector and healthy GDP growth overall. Readings below 50 indicate a contracting manufacturing sector but overall GDP growth is still positive until the ISM index falls below 42.5 (based on statistics through January 2011). Readings in between these two levels suggest that manufacturing is declining while GDP is still growing but only very slowly.
In addition to the ISM manufacturing composite index, the various sub-components contain useful information about manufacturing activity. The production component is related to industrial production, new orders to durable goods orders, employment to factory payrolls, prices to producer prices, export orders to merchandise trade exports and import orders to merchandise imports.
Vendor (supplier) deliveries are an important component of report. The more slowly orders are filled and delivered, the stronger the economic growth and the greater the potential for inflation. When orders are filled quickly, it means that producers don't have as many to fill.
The ISM manufacturing composite index and its sub-components can be subject to some monthly volatility, making the three-month average of the monthly levels more indicative of the trend.
The ISM manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provide insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data. As a result, the bond market is highly sensitive to this report.
Importance
The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is enhanced by the fact that it is available very early in the month and is not subject to revision.
Interpretation
The bond market will rally (fall) when the ISM manufacturing index is weaker (stronger) than expected. Equity markets prefer lower interest rates and could rally with the bond market. However, a healthy manufacturing sector, indicated by rising ISM index levels, bodes well for corporate earnings and is bullish for the stock market.
The level of the ISM manufacturing index indicates whether manufacturing and the overall economy are growing or declining. Historically, readings of 50 percent or above are associated with an expanding manufacturing sector and healthy GDP growth overall. Readings below 50 indicate a contracting manufacturing sector but overall GDP growth is still positive until the ISM index falls below 42.5 (based on statistics through January 2011). Readings in between these two levels suggest that manufacturing is declining while GDP is still growing but only very slowly.
In addition to the ISM manufacturing composite index, the various sub-components contain useful information about manufacturing activity. The production component is related to industrial production, new orders to durable goods orders, employment to factory payrolls, prices to producer prices, export orders to merchandise trade exports and import orders to merchandise imports.
Vendor (supplier) deliveries are an important component of report. The more slowly orders are filled and delivered, the stronger the economic growth and the greater the potential for inflation. When orders are filled quickly, it means that producers don't have as many to fill.
The ISM manufacturing composite index and its sub-components can be subject to some monthly volatility, making the three-month average of the monthly levels more indicative of the trend.
