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Economy in Brief

ISM Manufacturing Index Beats Expectations in July
by Tom Moeller  August 3, 2020

• Composite Index is above break-even for a second straight month.

• Most component series improve.

• Price index increases further.

The Institute for Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity increased to 54.2 last month after rising to 52.6 in June. These readings followed three consecutive months below the break-even level of 50 and July was the highest figure since March 2019. A level of 53.8 was expected in the Action Economics Forecast Survey. During the last 15 years, there has been a 49% correlation between the composite index and the quarterly change in real GDP.

The production index rose to 62.1 from 57.3 in June. An increased 42% (NSA) of respondents reported higher production while a lessened 19% reported a decline. The new orders index similarly strengthened to 61.5 from 56.4. This is higher than the April low of 27.1, as an improved 41% (NSA) of survey respondents reported higher new orders. A greatly lessened 19% reported fewer orders.

Adding to the improvement was a rise in the employment measure to 44.3, the highest point since February. The index nevertheless remained below its peak of 60.1 reached in February 2018. A steady 15% (NSA) of respondents reported higher payrolls while a lessened 25% reported declines.

The supplier delivery measure fell to 55.8 from 56.9, indicating fewer bottlenecks in the supply chain. It was the lowest level in six months. The inventories measure weakened to 47.0 and remained below the February 2018 peak of 55.0.

The prices paid index increased to 53.2 (NSA), the highest level in six months. An improved 23% of respondents reported higher prices while a steady 16% reported declines.

Other series in the ISM report indicated improvement. The export order measure increased to 50.4 from 47.6. It was the highest level since February, up from a low of 35.3 in April. The import series surged to 53.1, while the order backlog measure again rose sharply.

The ISM figures are based on responses from over 400 manufacturing purchasing executives from 20 industries, which correspond to their contribution to GDP in 50 states. The ISM figures are diffusion indexes where a reading above 50 indicates expansion. The figures from the Institute for Supply Management can be found in Haver's USECON database; further detail is found in the SURVEYS database. The expectations number is available in Haver's AS1REPNA database.

ISM Mfg (SA) Jul Jun May Jul'19 2019 2018 2017
Composite Index 54.2 52.6 43.1 51.3 51.2 58.9 57.4
 New Orders 61.5 56.4 31.8 51.1 51.1 61.6 62.1
 Production 62.1 57.3 33.2 51.3 51.2 60.9 60.9
 Employment 44.3 42.1 32.1 51.3 50.9 56.9 56.8
 Supplier Deliveries 55.8 56.9 68.0 53.5 52.9 62.0 56.8
 Inventories 47.0 50.5 50.4 49.3 49.8 52.9 50.4
Prices Paid Index (NSA) 53.2 51.3 40.8 45.1 49.1 71.7 65.0
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