June 2017 ISM and Markit Surveys

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“Soft” data from the Institute for Supply Management’s (ISM) monthly opinion survey showed that the expansion in U.S. manufacturing quickened in June. The PMI registered 57.8%, up 2.9 percentage points from May. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. Only two (inventories and input prices) of the 11 sub-indexes had lower values. 

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The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- quickened modestly when advancing by 0.5 percentage point, to 57.4%. Three (employment, order backlogs, and inventory sentiment) of the 11 sub-indexes exhibited lower values. 

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All of the industries we track expanded. “Labor continues to be constrained in the construction industry, driving cost increases," observed one Construction respondent.

Relevant commodities --
* Priced higher: Construction trades subcontractors; diesel; labor (construction and temporary); paper; linerboard; corrugate; corrugated boxes.
* Priced lower: Lumber and plywood (pine and spruce); crude oil; natural gas.
* Prices mixed: Gasoline.
* In short supply: Labor (general, construction, services, and temporary).

Consistency among ISM’s and IHS Markit’s surveys was mixed in June. Whereas ISM showed faster manufacturing growth, Markit’s manufacturing PMI eased to a nine-month low. Both ISM’s NMI and Markit’s services PMI accelerated, however.

Commenting on the data, Chris Williamson, Markit’s chief business economist said:

Manufacturing -- “Manufacturers reported a disappointing end to the second quarter, with few signs of growth picking up any time soon.

“The PMI has been sliding lower since the peak seen in January and the June reading points to a stagnation -- at best -- in the official manufacturing output data.

“The survey’s employment index meanwhile suggests that factories will make little or no contribution to non-farm payroll growth in June.

“Forward looking indicators -- notably a further slowdown in inflows of new business to a nine-month low and a sharp drop in the new orders to inventory ratio -- suggest that the risks are weighted to the downside for coming months.

“Any good news was saved for inflation, with price pressures easing substantially in June on the back of waning global commodity prices.”

Services -- “The final PMI numbers came in higher than the initial flash reading and provide news of a welcome uptick in the pace of growth in the vast services economy at the end of the second quarter.

“The services data follow news from the sister manufacturing survey showing steady but unspectacular growth in US factories.

“Looking at the combined performance of manufacturing and services, output, order books and employment all gained momentum in June, and average prices charged for goods and services rose at the fastest rate for nearly three years.

“However, the average all-sector PMI reading for the second quarter is down slightly on the first quarter, suggesting that the underlying pace of economic growth remains somewhat subdued though still robust. The surveys are historically consistent with annualized GDP growth of just over 2%. Actual GDP data are expected to show a stronger rebound, though largely reflecting volatile quarterly seasonal variations in the official data.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.