The June ISM Manufacturing Index came in at 53.0% below the consensus 55.0% and from 56.1% in May. The clear slowdown in manufacturing activity is evident, highlighted by the first contraction in new order activity in 25 months. The New Orders Index fell to 49.2% from 55.1%. June marked the 25th consecutive month of expansion in the manufacturing sector. However, this June reading was the lowest since June 2020. Price pressures mellowed, though still elevated. Prices Index dropped to 78.5% from 82.2%.
The hope is improved supply chain conditions; the question is does the Ukraine Russian war flow on allow for any gains?
A number above 50.0% is indicative of expansion.
“All of the six biggest manufacturing industries — Computer & Electronic Products; Machinery; Transportation Equipment; Petroleum & Coal Products; Food, Beverage & Tobacco Products; and Chemical Products — registered moderate-to-strong growth in June.”
A standout from the report is that manufacturing activity picked up in May despite the rampant inflation and ongoing supply chain problems. Sentiment regarding demand remained strongly optimistic with hope that things improve sooner than later.
“The U.S. manufacturing sector continues to be powered — though less so in June — by demand while held back by supply chain constraints. Despite the Employment Index contracting in May and June, companies improved their progress on addressing moderate-term labor shortages at all tiers of the supply chain, according to Business Survey Committee respondents’ comments. Panelists reported lower rates of quits compared to May. Prices expansion slightly eased for a third straight month in June, but instability in global energy markets continues. Sentiment remained optimistic regarding demand, with three positive growth comments for every cautious comment. Panelists continue to note supply chain and pricing issues as their biggest concerns.”Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee:
June ISM 2022 Highlights
- The New Orders Index fell to 49.2% from 55.1%.
- The Prices Index dropped to 78.5% from 82.2%.
- The Backlog of Orders Index decreased to 53.2% from 58.7%.
- The Supplier Deliveries Index dropped to 57.3% from 65.7%.
- The Production Index increased to 54.9% from 54.2%.
- The New Export Orders Index slipped to 50.7% 52.9%.
- The Employment Index declined to 47.3% from to 49.6%.
- Demand dropped, with the (1) New Orders Index contracting, (2) Customers’ Inventories Index remaining at a very low level, though it increased and (3) Backlog of Orders Index decreasing but still in growth territory.
- Consumption (measured by the Production and Employment indexes) was mixed during the period, with a combined minus-1.6-percentage point change to the Manufacturing PMI® calculation.
- The Employment Index contracted for the second month in a row after expanding for eight straight months (September through April), but panelists again indicated month-over-month improvement in ability to hire in June.
- Challenges with turnover (quits and retirements) and resulting backfilling continue to plague efforts to adequately staff organizations, but to a lesser degree compared to the previous month.
- Inputs — expressed as supplier deliveries, inventories and imports — continued to constrain production expansion but to a lesser extent compared to May.
- The Supplier Deliveries Index indicated deliveries slowed at a slower rate in June, which was supported by a slight increase in the Inventories Index.
- The Imports Index expanded in June after one month of contraction preceded by six consecutive months of expansion.
- The Prices Index increased for the 25th consecutive month, at a slower rate compared to May.
WHAT RESPONDENTS ARE SAYING
- “Backlog is high, but incoming orders slowing this month.” [Computer & Electronic Products]
- “New orders have stabilized and not increased.” [Chemical Products]
- “Continued strong demand for transportation equipment.” [Transportation Equipment]
- “Business is slower than expected in volume, but revenue is on pace with our budget. Ocean freight costs are finally beginning to fall a bit. We are already receiving large orders for the fall, which is encouraging.” [Food, Beverage & Tobacco Products]
- “Continued tightening of market, rising gas/diesel prices, and limited labor/drivers equates to increased cost. Few markets showing a levelling off.” [Petroleum & Coal Products]
- “Our suppliers are experiencing a softening of orders. We are still running at the same high level we did throughout 2021 and in early 2022.” [Machinery]
- “Business is still steady. Some customers are pushing orders out because they have too much inventory. We are able to backfill the pushed orders from customers that want theirs earlier, so we aren’t losing capacity.” [Fabricated Metal Products]
- “We are hearing from customers that their inventories are high, and sales are coming down. We expect orders to decline in the coming months until inventories are leveled properly against demand.” [Apparel, Leather & Allied Products]
- “Orders and production continue to be strong, but material availability is holding us back. Cannot run enough hours to eat into the backlog.” [Electrical Equipment, Appliances & Components]
- “Supply seems to be settling to some degree, but what it is settling into remains in question. Diminishing cost and (continued) limited supply in aluminum make for an interesting combination. There are actually more questions than answers this month.” [Primary Metals]
From The TradersCommunity News Desk