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The Institute for
Supply Management’s (ISM) monthly opinion survey showed that growth of economic
activity in the U.S. manufacturing sector quickened in June. The PMI
registered 53.5%, an increase of 0.7
percentage point over the May reading of 52.8%.
(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. The most apparent changes included increases in employment
and inventories, decreased order backlogs, and moderation in the growth of imports.
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Wood
Products expanded in June as increased new orders apparently overshadowed the
contraction in backlogged and export orders. Paper Products was mixed, but
managed to expand as well.
The
pace of growth in the non-manufacturing sector -- which accounts for 80% of the
economy and 90% of employment -- quickened marginally in June. The NMI registered
56.0%, 0.3 percentage point higher than the May
reading of 55.7%. The sub-indexes that provide some forward-looking
context were mixed.
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Two
of the three service industries we track reported expansion in June. The was
little consistency among the sub-indexes.
Relevant
commodities up in price included fuel (both diesel and gasoline) and paper. Natural
gas was cheaper. No relevant commodities were in short supply.
ISM’s
and
Markit’s
surveys were consistent insofar as all reported expansion across manufacturing
and services; Markit, however, reported slower growth instead of ISM’s faster
growth.
Comments
from Chris Williamson, Markit’s chief economist, are presented below:
Manufacturing -- “Purchasing managers are reporting the slowest
rate of manufacturing expansion for over a year and a half, suggesting that the
economy is slowing again.
“The
slowdown is largely linked to a third consecutive monthly fall in exports, in
turn attributed by many companies to the strong dollar undermining
international competitiveness.
“Investment
spending also appears to be waning, with recent months seeing the slowest
growth of new orders for business equipment and machinery for two years. The
investment slowdown suggests companies are becoming more risk averse and
cautious in their spending. The current impressive rate of factory job creation
could soon likewise wane unless the outlook improves.
“The
good news is that the export and investment drags are being offset by an
ongoing surge in consumer spending, which is in turn most likely linked to
falling prices in recent months. An upturn in growth of new orders for consumer
goods helped drive an increase in overall manufacturing orders books during the
month, providing a ray of hope that output growth will stabilize at its current
modest pace.
“Policymakers
will be concerned about the unbalanced nature of growth, and in particular the
loss of export and investment drivers, and will want to see growth pick up
again in coming months before committing to higher interest rates.”
Services -- “The June PMI data round off a solid second
quarter for the US economy, with GDP likely to have risen at an annualized 3%
rate. However, it’s important to look at what’s happened over the course of the
quarter, rather than looking at the quarter as a whole. Although still signaling
moderate growth in June, the manufacturing and service sector surveys indicate
that the rate of economic expansion has slowed markedly since the start of the
quarter, when business was boosted by a rebound from weather related weakness.
“The
loss of growth momentum seen in the surveys means GDP growth could slacken off
again in the third quarter and hiring could likewise ease off.
“Fed
talk will most likely continue to prepare the ground for rate hikes later this
year, but policymakers will want to see firmer evidence that the economy
retains healthy growth momentum before taking the plunge and hiking interest
rates, especially given ongoing disappointing pay growth and benign inflation.”
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.
