Rob Lampert/Unsplash
A Second Month of Recovery for Manufacturing

A Second Month of Recovery for Manufacturing

Aug. 4, 2020
“Demand and consumption continued to drive expansion growth, with inputs remaining at parity with supply and demand,” said Timothy Fiore, ISM CEO.

The outlook for manufacturing continued to recover through July as the Institute for Supply Management reported a second month of manufacturing growth and a third month of growth for the economy overall.

The ISM’s Pricing Manager’s Index increased to 54.2%, up 1.6 points from June’s PMI. Indexes for new orders, production, prices, and order backlogs all increased. The employment index also increased, but remained below 50%, indicating a slower contraction. Imports and new export orders indexes moved into growth territory in July.

The index of new orders rose to 61.5% in July, up 5.1 points from June, as the production index rose 4.8 points to 62.1%. The manufacturing PMI as well as the new orders and production indexes are all rising at a faster rate compared to last month. The rate of contraction in the manufacturing workforce slowed in July as the index for manufacturing employment rose 2.2 points to 44.3% in July. The indexes for order backlogs, new export orders, and imports all reversed June trends and moved into growth territory: the backlog of orders index rose 6.5 points to 51.8%, new export orders rose 2.8 points to 50.4%, and imports rose 4.3 points to 53.1%.

“Demand and consumption continued to drive expansion growth, with inputs remaining at parity with supply and demand,” said Timothy Fiore, ISM CEO.

Fiore pointed to survey comments as well as rising prices as signs of increasing industry confidence. A chemical products executive said that orders were starting to pick up at a rate of 35% to 40%, and the CEO of a Computer & Electronic Products company said that business had resumed “at nearly 100%.”

Other quoted respondents still displayed the hesitant optimism of the June ISM survey. A fabricated metal products CEO wrote that while demand for the coming months was stabilizing, customers were not confident in forecasts for recovery. The least hopeful response came from a transportation equipment executive, who reported that business was still down by nearly 70%. “We are hanging on to as many employees as possible, but we will have to lay off 30% or more for at least two to three months until September or October,” they wrote.

One standout industry, Food, Beverage, and Tobacco Products, has seen an opposite impact from most other manufacturing industries as COVID-19 stay-at-home orders have dramatically warped orders from domestic consumers, restaurants, and schools. A surveyed CEO reported stabilizing—but still elevated—demand for refrigerated and frozen food, but said that the uncertainty of how many schools would reopen or when made it difficult to estimate future demand.

In commodities, aluminum, copper, crude oil, diesel fuel, high-density polyethylene, lumber, oil-based products, plastic products, polypropylene, and precious metals all rose in price as steel and diesel fuel fell. In another wrinkle demonstrating how the coronavirus outbreak was still impacting manufacturing processes, commodities listed as “in short supply” included masks, gloves, and sanitizers and disinfectants. PPE in general has now been in short supply for 3 months running, and protective gloves have been harder to come by for 5 months.

Last month, Fiore said that manufacturing’s growth cycle had returned after the impact of the COVID-19 pandemic caused depressed figures for March, April, and May. The PMI fell as low as 41.5% in April before climbing to 43.1% in May and resumed growth in June at 52.6%.

Latest from Global Supply Chain

#198695857@Pramote Polyamate|Dreamstime
Manufacturing Sector Still Contracting: ISM
#292530538@Lightfieldstudiosprod|Dreamstime
Holidays Sales to Hit New Record: NRF