June 2019 Manufacturing ISM® Report On Business®

PMI® at 51.7%

New Orders Unchanged; Production and Employment Growing

Supplier Deliveries Slowing at a Slower Rate; Backlog Contracting

Raw Materials Inventories Contracting; Customers’ Inventories Too Low

Prices Decreasing; Exports Growing, Imports Unchanged

(Tempe, Arizona) — Economic activity in the manufacturing sector expanded in June, and the overall economy grew for the 122nd consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee: “The June PMI® registered 51.7 percent, a decrease of 0.4 percentage point from the May reading of 52.1 percent. The New Orders Index registered 50 percent, a decrease of 2.7 percentage points from the May reading of 52.7 percent. The Production Index registered 54.1 percent, a 2.8-percentage point increase compared to the May reading of 51.3 percent. The Employment Index registered 54.5 percent, an increase of 0.8 percentage point from the May reading of 53.7 percent. The Supplier Deliveries Index registered 50.7 percent, a 1.3-percentage point decrease from the May reading of 52 percent. The Inventories Index registered 49.1 percent, a decrease of 1.8 percentage points from the May reading of 50.9 percent. The Prices Index registered 47.9 percent, a 5.3-percentage point decrease from the May reading of 53.2 percent.

“Comments from the panel reflect continued expanding business strength, but at soft levels; June was the third straight month with slowing PMI® expansion. Demand expansion ended, with the New Orders Index recording zero expansion, the Customers’ Inventories Index remaining at a too-low level, and the Backlog of Orders Index contracting for the second straight month. New export orders remain weak. Consumption (measured by the Production and Employment indexes) continued to expand, resulting in a combined increase of 3.6 percentage points. Inputs — expressed as supplier deliveries, inventories and imports — were lower this month, due to inventory contraction and suppliers continuing to deliver faster, resulting in a combined 3.1-percentage point reduction in the Supplier Deliveries and Inventories indexes. Imports registered zero expansion. Overall, inputs indicate (1) supply chains are responding faster and (2) supply managers are again closely watching inventories. Prices contracted for the first time since February.

“Respondents expressed concern about U.S.-China trade turbulence, potential Mexico trade actions and the global economy. Overall, sentiment this month is evenly mixed,” says Fiore.

Of the 18 manufacturing industries, 12 reported growth in June, in the following order: Furniture & Related Products; Printing & Related Support Activities; Textile Mills; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Chemical Products; Computer & Electronic Products; Paper Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; and Machinery. The five industries reporting contraction in June are: Apparel, Leather & Allied Products; Primary Metals; Wood Products; Transportation Equipment; and Fabricated Metal Products.

What respondents are saying…
  • “China tariffs and pending Mexico tariffs are wreaking havoc with supply chains and costs. The situation is crazy, driving a huge amount of work [and] costs, as well as potential supply disruptions.” (Computer & Electronic Products)
  • “Tariffs are causing an increase in cost of goods, meaning U.S. consumers are paying more for products.” (Chemical Products)
  • “Demand for the remainder of 2019 has softened significantly, due to issues in the aerospace industry. The 2020 outlook is looking stronger. Overall, state and local economies remain strong. Recruiting for open positions still requires time to find the right candidates.” (Transportation Equipment)
  • “Global demand remains very strong. [We] shifted shipments to China from our U.S. plants to our Canadian and European plants because of tariffs.” (Food, Beverage & Tobacco Products)
  • “Tariffs continue to be a challenge. We are concerned about the implementation of Mexican tariffs and the cost pressures it will have on our Latin American business.” (Petroleum & Coal Products)
  • “Tariffs continue to adversely impact decisions and forecasting. Our increasing fear is that current trends will weaken the global economy, influencing our ability to grow in 2020 and beyond.” (Fabricated Metal Products)
  • “A late planting season has caused a slowdown in our agricultural business. Seeing higher prices due to tariffs and tariff-related supply chain issues.” (Machinery)
  • “Business is still strong. Pricing on raw materials has stabilized.” (Plastics & Rubber Products)
  • “Business has slowed in the last 30 to 60 days. The last 30 days have tracked 4 percent below plan, but still 6 to 8 percent above the previous year to date.” (Miscellaneous Manufacturing)
  • “Weather in various markets across the country has improved month over month, which has positively affected our daily output. If the trend continues, we will have to replenish [at] an increased month-over-month rate.” (Wood Products)

Manufacturing at a Glance
June 2019

Index Series Index Jun Series Index May Percentage Point Change Direction Rate of Change Trend* (Months)
PMI® 51.7 52.1 -0.4 Growing Slower 34
New Orders 50.0 52.7 -2.7 Unchanged From Growing 1
Production 54.1 51.3 +2.8 Growing Faster 34
Employment 54.5 53.7 +0.8 Growing Faster 33
Supplier Deliveries 50.7 52.0 -1.3 Slowing Slower 40
Inventories 49.1 50.9 -1.8 Contracting From Growing 1
Customers’ Inventories 44.6 43.7 +0.9 Too Low Slower 33
Prices 47.9 53.2 -5.3 Decreasing From Increasing 1
Backlog of Orders 47.4 47.2 +0.2 Contracting Slower 2
New Export Orders 50.5 51.0 -0.5 Growing Slower 2
Imports 50.0 49.4 +0.6 Unchanged From Contracting 1
OVERALL ECONOMY Growing Slower 122
Manufacturing Sector Growing Slower 34
Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Supplier Deliveries Indexes.
*Number of months moving in current direction.

Commodities reported up/down in price and in short supply

Commodities Up in Price

Corn; Printed Circuit Board Assemblies; Soybean Products; and Steel Products* (2).

Commodities Down in Price

Aluminum (3); Copper; Corrugated Boxes; Lumber Products; Memory; Natural Gas (2); Scrap Metal (2); Steel — Cold Rolled; Steel — Hot Rolled (3); Steel — Stainless; and Steel Products* (6).

Commodities in Short Supply

Capacitors (3); Electrical Components; Electronic Components (14); and Integrated Circuits (2).

Note: The number of consecutive months the commodity is listed is indicated after each item

*Indicates both up and down in price.


June Manufacturing Index Summaries


PMI®

Manufacturing expanded in June, as the PMI® registered 51.7 percent, a decrease of 0.4 percentage point from the May reading of 52.1 percent. This is the lowest reading since October 2016, when the index registered 51.7 percent. “This indicates growth in manufacturing for the 34th consecutive month. The PMI® continued a period of expansion softening that began in September 2018. Softening this month was primarily due to demand and inputs — new orders, supplier deliveries and inventories. Four of the six big industries expanded (up from three the previous month), but at lower rates,” says Fiore. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI® above 42.9 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the June PMI® indicates growth for the 122nd consecutive month in the overall economy and the 34th straight month of growth in the manufacturing sector. “The past relationship between the PMI® and the overall economy indicates that the PMI® for June (51.7 percent) corresponds to a 2.6-percent increase in real gross domestic product (GDP) on an annualized basis,” says Fiore.

The Last 12 Months

Month PMI®
Jun 2019 51.7
May 2019 52.1
Apr 2019 52.8
Mar 2019 55.3
Feb 2019 54.2
Jan 2019 56.6
Month PMI®
Dec 2018 54.3
Nov 2018 58.8
Oct 2018 57.5
Sep 2018 59.5
Aug 2018 60.8
Jul 2018 58.4
56.0
60.8
51.7

New Orders

ISM®’s New Orders Index registered 50 percent in June, which is a decrease of 2.7 percentage points when compared to the 52.7 percent reported for May, indicating that new orders remained unchanged after increasing for 41 consecutive months. “Customer demand did not expand for the first time since December 2015, when the index registered 49.6 percent. Three of the top six industry sectors expanded, two contracted and one was unchanged,” says Fiore. A New Orders Index above 52.5 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

Of 18 manufacturing industries, 10 reported growth in new orders in June, in the following order: Furniture & Related Products; Nonmetallic Mineral Products; Textile Mills; Printing & Related Support Activities; Chemical Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Paper Products; and Computer & Electronic Products. The six industries reporting a decline in new orders in June — in the following order — are: Apparel, Leather & Allied Products; Primary Metals; Wood Products; Transportation Equipment; Machinery; and Fabricated Metal Products.

New Orders % Higher % Same % Lower Net Index
Jun 2019 24.6 55.9 19.5 +5.1 50.0
May 2019 26.9 56.7 16.4 +10.5 52.7
Apr 2019 31.0 50.2 18.8 +12.2 51.7
Mar 2019 37.2 49.8 13.0 +24.2 57.4

Production

ISM®’s Production Index registered 54.1 percent in June, which is an increase of 2.8 percentage points when compared to the 51.3 percent reported for May, indicating growth in production for the 34th consecutive month. “Production expansion continued in June, and at a stronger pace compared to May. The index recorded the strongest gain of all PMI® subindexes. Production output was able to improve customer-inventory positions and reduce backlog orders,” says Fiore. An index above 51.7 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The 13 industries reporting growth in production during the month of June — listed in order — are: Wood Products; Furniture & Related Products; Textile Mills; Printing & Related Support Activities; Petroleum & Coal Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Chemical Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Paper Products; Miscellaneous Manufacturing; and Machinery. The five industries reporting a decrease in production in June are: Apparel, Leather & Allied Products; Transportation Equipment; Primary Metals; Fabricated Metal Products; and Plastics & Rubber Products.

Production % Higher % Same % Lower Net Index
Jun 2019 31.7 48.7 19.6 +12.1 54.1
May 2019 25.4 54.9 19.7 +5.7 51.3
Apr 2019 30.4 51.5 18.1 +12.3 52.3
Mar 2019 30.8 54.8 14.4 +16.4 55.8

Employment

ISM®’s Employment Index registered 54.5 percent in June, an increase of 0.8 percentage point when compared to the May reading of 53.7 percent. This indicates growth in employment in June for the 33rd consecutive month. “Employment continued to expand, and at marginally higher levels compared to May. Comments were predominantly ‘pro hire’ in support of capacity expansion, replacing retiring workers and adding summer help. Few comments were in support of hiring freezes and head-count reductions,” says Fiore. An Employment Index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of 18 manufacturing industries, 12 reported employment growth in June, in the following order: Furniture & Related Products; Printing & Related Support Activities; Paper Products; Petroleum & Coal Products; Textile Mills; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Miscellaneous Manufacturing; Machinery; Food, Beverage & Tobacco Products; Chemical Products; and Transportation Equipment. The four industries reporting a decrease in employment in June are: Wood Products; Primary Metals; Plastics & Rubber Products; and Fabricated Metal Products.

Employment % Higher % Same % Lower Net Index
Jun 2019 26.2 61.2 12.6 +13.6 54.5
May 2019 23.1 63.6 13.2 +9.9 53.7
Apr 2019 19.6 68.0 12.4 +7.2 52.4
Mar 2019 24.9 63.7 11.5 +13.4 57.5

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations slowed in June, as the Supplier Deliveries Index registered 50.7 percent. This is 1.3 percentage points lower than the 52 percent reported for May. “This is the 40th straight month of slowing supplier deliveries, with the index achieving its lowest level since September 2016 (50.2 percent). Supplier deliveries are improving, with many respondents noting more readily available goods and shorter lead times. Land-, port- and river-transportation bottlenecks continue to impact the supply chain,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The nine industries reporting slower supplier deliveries in June — listed in order — are: Nonmetallic Mineral Products; Furniture & Related Products; Primary Metals; Computer & Electronic Products; Chemical Products; Plastics & Rubber Products; Machinery; Miscellaneous Manufacturing; and Food, Beverage & Tobacco Products. The five industries reporting faster supplier deliveries in June are: Wood Products; Fabricated Metal Products; Paper Products; Electrical Equipment, Appliances & Components; and Transportation Equipment.

Supplier Deliveries % Slower % Same % Faster Net Index
Jun 2019 9.7 83.0 7.3 +2.4 50.7
May 2019 11.0 82.9 6.1 +4.9 52.0
Apr 2019 18.0 73.6 8.4 +9.6 54.6
Mar 2019 16.4 76.9 6.7 +9.7 54.2

Inventories*

The Inventories Index registered 49.1 percent in June, a decrease of 1.8 percentage points from the 50.9 percent reported for May. “The index contracted for the first time since December 2017, when it registered 48.5 percent. Inventories were again depleted relative to production, due to production-output strength and despite suppliers delivering at a slower rate. Many respondents noted that they continue to watch inventories closely to align with softening demand, prepare for a period-measurement point, and reflect peak-season manufacturing declines in the summer,” says Fiore. An Inventories Index greater than 44.3 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The seven industries reporting higher inventories in June — listed in order — are: Printing & Related Support Activities; Textile Mills; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; and Machinery. The five industries reporting a decrease in inventories in June are: Apparel, Leather & Allied Products; Primary Metals; Transportation Equipment; Fabricated Metal Products; and Chemical Products. Six industries reported no change in raw materials inventories in June as compared to May.

Inventories % Higher % Same % Lower Net Index
Jun 2019 16.5 65.1 18.4 -1.9 49.1
May 2019 18.8 64.3 16.9 +1.9 50.9
Apr 2019 20.5 64.8 14.7 +5.8 52.9
Mar 2019 18.4 66.9 14.7 +3.7 51.8

Customers’ Inventories*

ISM®’s Customers’ Inventories Index registered 44.6 percent in June, which is 0.9 percentage point higher than the 43.7 percent reported for May, indicating that customers’ inventory levels were considered too low. “Although customers’ inventories are too low for the 33rd consecutive month, they are approaching preferable levels. This the second straight month of increasing customer-inventory levels. The ‘too low’ status continues to indicate future production-growth potential, but the index is at its lowest level since January 2018 (45.6 percent),” says Fiore.

The five industries reporting customers’ inventories as too high during the month of June are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; and Primary Metals. The nine industries reporting customers’ inventories as too low during June — listed in order — are: Wood Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Transportation Equipment; Computer & Electronic Products; Paper Products; Machinery; Fabricated Metal Products; and Chemical Products.

Customers’ Inventories % Reporting % Too High % About Right % Too Low Net Index
Jun 2019 77 11.1 66.9 22.0 -10.9 44.6
May 2019 81 10.5 66.5 23.0 -12.5 43.7
Apr 2019 78 10.5 64.2 25.3 -14.8 42.6
Mar 2019 80 6.8 71.7 21.4 -14.6 42.7

Prices*

The ISM® Prices Index registered 47.9 percent in June, a decrease of 5.3 percentage points from the May reading of 53.2 percent, indicating raw materials prices decreased following one month of increases. “Prices contracted in June for the first time since February, when the index registered 49.4 percent. Shortages and price increases remain in electronic components and food ingredients; they are offset by copper, steel, energy and aluminum price declines,” says Fiore. A Prices Index above 52.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

Six of the 18 industries reported paying increased prices for raw materials in June in the following order: Furniture & Related Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Computer & Electronic Products; and Transportation Equipment. The 10 industries reporting a decrease in prices for raw materials in June — listed in the following order — are: Primary Metals; Fabricated Metal Products; Apparel, Leather & Allied Products; Paper Products; Wood Products; Textile Mills; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Chemical Products; and Machinery.

Prices % Higher % Same % Lower Net Index
Jun 2019 19.7 56.4 23.9 -4.2 47.9
May 2019 22.0 62.3 15.7 +6.3 53.2
Apr 2019 19.0 62.1 19.0 0.0 50.0
Mar 2019 19.1 70.5 10.5 +8.6 54.3

Backlog of Orders*

ISM®’s Backlog of Orders Index registered 47.4 percent in June, which is 0.2 percentage point higher than the 47.2 percent reported in May, indicating order backlogs contracted for a second consecutive month, at a slower rate in June. “Backlogs shrank during June due to production output being able to exceed new order intake rates,” says Fiore.

The six industries reporting growth in order backlogs in June — listed in order — are: Furniture & Related Products; Nonmetallic Mineral Products; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Fabricated Metal Products. The 12 industries reporting a decrease in order backlogs during June — listed in order — are: Wood Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Textile Mills; Petroleum & Coal Products; Primary Metals; Plastics & Rubber Products; Paper Products; Machinery; Computer & Electronic Products; Transportation Equipment; and Chemical Products.

Backlog of Orders* % Reporting % Higher % Same % Lower Net Index
Jun 2019 88 17.8 59.2 23.0 -5.2 47.4
May 2019 88 21.7 51.1 27.2 -5.5 47.2
Apr 2019 89 24.1 59.8 16.2 +7.9 53.9
Mar 2019 86 19.0 62.8 18.2 +0.8 50.4

New Export Orders*

ISM®’s New Export Orders Index registered 50.5 percent in June, 0.5 percentage point lower compared to the May reading of 51 percent, indicating that new export orders grew for the second consecutive month. “New Export orders expanded marginally, with many respondents noting global trade softness in Europe, Southeast Asia and China as reasons for sluggish activity. Three of the six big industry sectors contributed to the expansion — the same number as last month, but with a different mix,” says Fiore.

The seven industries reporting growth in new export orders in June in order are: Textile Mills; Furniture & Related Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Chemical Products; Paper Products; and Computer & Electronic Products. The eight industries reporting a decrease in new export orders in June — listed in order — are: Apparel, Leather & Allied Products; Wood Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Machinery; Transportation Equipment; and Fabricated Metal Products.

New Export Orders* % Reporting % Higher % Same % Lower Net Index
Jun 2019 77 13.2 74.5 12.3 +0.9 50.5
May 2019 77 13.6 74.6 11.7 +1.9 51.0
Apr 2019 78 9.1 80.8 10.1 -1.0 49.5
Mar 2019 78 10.7 82.0 7.3 +3.4 51.7

Imports*

ISM®’s Imports Index registered 50 percent in June, an increase of 0.6 percentage point when compared to the 49.4 percent reported for May, indicating that imports were unchanged in June after two consecutive months of contraction. “Imports stabilized, with many respondents reporting considerable turbulence in importing, from pulling ahead material to avoid tariffs, onshoring material that used to be imported, and managing inventory heading into possible midyear slowdowns in business,” says Fiore.

The eight industries reporting growth in imports during the month of June — listed in order — are: Wood Products; Primary Metals; Textile Mills; Nonmetallic Mineral Products; Fabricated Metal Products; Miscellaneous Manufacturing; Computer & Electronic Products; and Food, Beverage & Tobacco Products. The eight industries reporting a decrease in imports in June in the following order are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Paper Products; Furniture & Related Products; Transportation Equipment; Plastics & Rubber Products; Machinery; and Chemical Products.

Imports % Reporting % Higher % Same % Lower Net Index
Jun 2019 83 11.1 77.8 11.1 0.0 50.0
May 2019 84 10.7 77.4 11.9 -1.2 49.4
Apr 2019 85 12.5 74.4 13.0 -0.5 49.8
Mar 2019 82 12.0 78.2 9.8 +2.2 51.1
*The Inventories, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders and Imports Indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy

Average commitment lead time for Capital Expenditures increased by six days in June to 151 days. Average lead time for Production Materials was unchanged from May, at 72 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies increased by one day in June to 36 days.

Percent Reporting

Capital Expenditures Hand-to-Mouth 30 Days 60 Days 90 Days 6 Months 1 Year + Average Days
Jun 2019 19 4 11 16 29 21 151
May 2019 21 4 12 15 28 20 145
Apr 2019 22 4 9 20 23 22 146
Mar 2019 20 5 9 18 26 22 150
Production Materials Hand-to-Mouth 30 Days 60 Days 90 Days 6 Months 1 Year + Average Days
Jun 2019 12 32 26 17 9 4 72
May 2019 11 32 27 17 9 4 72
Apr 2019 11 31 30 16 8 4 71
Mar 2019 11 33 28 17 8 3 68
MRO Supplies Hand-to-Mouth 30 Days 60 Days 90 Days 6 Months 1 Year + Average Days
Jun 2019 37 37 17 6 2 1 36
May 2019 36 40 17 4 2 1 35
Apr 2019 38 37 16 6 2 1 35
Mar 2019 35 39 17 7 2 0 34