ISM Data, like Overall Economy, Showing Mixed Signals

The US Purchasing Managers Index (PMI) for July, released this week by the Institute for Supply Management (ISM), came in at 52.8, down again from a score of 53.0 in June, but still above the key 50 level that separates US  manufacturing expansion from contraction.

Supply Chain Digest Says...   Added a manager in the food sector: "Growing inflation is pushing a stronger narrative around pending recession concerns. Many customers appear to be pulling back on orders in an effort to reduce inventories.” What do you say? Click here to send us your comments   Click here to see reader feedback

Despite falling for the second straight month, the PMI reflects the uncertain state of the US economy, which is sending mixed signals. The PMI is showing a slowing manufacturing enviroment - but one still in positive territory.

The July figure also indicates expansion in the US overall economy for the 26th month in a row after the last contractions in April and May 2020. (See chart of the PMI scores for the last 12 months below - the average score over that period was a strong 57.6.)

However, the July score was also the lowest figure since June 2020, when it registered 52.4.

Other measures in the ISM report were mixed.

Most worrisome: the important New Orders Index came in at just 48.0, the second straight month showing contraction, with scores under 50, in not good news for future US manufacturing activity.

The Backlog of Orders Index registered 51.3, still in positive territory, but down from 53.2 in June.

The Inventories Index registered 57.3, which was 1.3 percentage points above the the June reading of 56.0. meaning companies are adding to inventory levels. Whether on purpose or from slowing demand is not clear.

The Production Index reading of  53.5 was a 1.4-percentage point decrease compared to June's figure of 54.9.

The Prices Index, which tracks the cost of materials and components from suppliers, came in at 60.0, down a huge 18.5 percentage points compared to the June figure of 78.5. That means the majority of companies are still seeing rising input costs - but that number is falling fast.

US PMI Last 12 Months

Source: ISM

(See More Below)

Eleven of the 18 manufacturing sectors s ISM tracks reported growth in July.

As always, there were some interesting comments from PMI survey respondents. For example, one electronics industry manager said this to say: "Material extended lead times still affecting business, and the challenging labor market is a huge factor too. Backlog is healthy; we just cannot deliver to customers due to material issues."

Added a manager in the food sector: "Growing inflation is pushing a stronger narrative around pending recession concerns. Many customers appear to be pulling back on orders in an effort to reduce inventories.”

Finally, a manager in the textile sector had this to say: “Continuing delivery and staffing issues have eaten away the bottom line.”

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