U.S. manufacturing activity continue to grow in July, albeit at slower pace - ISM

A report from the Institute for Supply Management (ISM) showed on Monday the U.S. manufacturing sector’s activity continued to grow in July albeit at a slower pace than in June.

The ISM's index of manufacturing activity came in at 59.5 percent last month, down 1.1 percentage points from an unrevised June reading of 60.6 percent. The July reading pointed to the expansion in the manufacturing sector for the 14th straight month but at the weakest pace since January. Economists' had forecast the indicator to edge up to 60.9 percent. A reading above 50 percent indicates expansion, while a reading below 50 percent indicates contraction.

According to the report, the New Orders Index decreased 1.1 percentage points to 64.9 percent in July, while the Production Index fell 2.4 percentage points to 58.4 percent and the Supplier Deliveries Index dropped 2.6 percentage points to 72.5 percent. Meanwhile, the Employment Index surged 3.0 percentage points to 52.9 percent and the Backlog of Orders Index went up 0.5 percentage point to 65.0 percent. On the price front, the Prices Index declined 6.4 percentage points to 85.7 percent, stepping back from the June figure of 92.1 percent, which was the index's highest reading since July 1979.

Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee, noted that the Survey Committee members reported that their companies and suppliers continued to struggle to meet increasing demand levels. “As we enter the third quarter, all segments of the manufacturing economy are impacted by near record-long raw-material lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products,” he said. “Worker absenteeism, short-term shutdowns due to parts shortages and difficulties in filling open positions continue to be issues limiting manufacturing-growth potential. Optimistic panel sentiment remained strong, with 13 positive comments for every cautious comment.”

Fiore also noted that the past relationship between the PMI and the overall economy indicated that the PMI for July (59.5 percent) corresponded to a 4.7-percent gain in real gross domestic product (GDP) on an annualized basis.