Economic activity in the manufacturing sector grew in July, with the overall economy notching a third consecutive month of growth, according to a new report published by the Institute for Supply Management.
The Manufacturing ISM “Report on Business” calculated a July composite reading of 54.2 percent, a second straight month of growth for U.S. factories.
Timothy R. Fiore, chair of the ISM survey committee, explained that the “figure indicates expansion in the overall economy for the third month in a row after a contraction in April, which ended a period of 131 consecutive months of growth.”
“In July, manufacturing continued its recovery after the disruption caused by the coronavirus pandemic,” Fiore added. “Panel sentiment was generally optimistic (two positive comments for every one cautious comment), continuing a trend from June.”
Demand expanded and consumption saw positive trends, he said, “with industries continuing to expand output after May’s return-to-work actions.”
Of the 18 manufacturing industries, 13 reported growth in July: Wood Products; Furniture & Related Products; Textile Mills; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Chemical Products; Apparel, Leather & Allied Products; Computer & Electronic Products; Primary Metals; Petroleum & Coal Products; Miscellaneous Manufacturing; and Electrical Equipment, Appliances & Components. The three industries reporting contraction in July are: Transportation Equipment; Machinery; and Fabricated Metal Products.
Several survey industry respondents explained their position heading into the third quarter.
“Manufacturing outlook has improved greatly in June, as business has resumed at nearly 100 percent,” Computer & Electronic Products respondents said. “We have implemented a number of safeguards that are costing extra money, but we are running.”
“Stabilizing demand for refrigerated and frozen beverage and dessert, but still at higher level than a year ago,” Food, Beverage & Tobacco Products respondents said. “Uncertainty of school opening in the fall: How much demand will continue or shift will be dictated by students returning to school or not.”
“Orders starting to pick up. [An] increase of about 35 percent to 40 percent,” Chemical Products respondents said.
The growth cycle continues for the second straight month after three prior months of coronavirus disruptions, the report notes. “Demand and consumption continued to drive expansion growth, with inputs remaining at parity with supply and demand,” it states.
Among the six biggest industry sectors, Food, Beverage & Tobacco Products remains the best-performing industry sector, with Chemical Products, Computer & Electronic Products and Petroleum & Coal Products “growing respectably.” Transportation Equipment and Fabricated Metal Products continue to contract, “but at soft levels,” Fiore said.
“Overall business remains down almost 70 percent,” Transportation Equipment respondents said. “We are hanging on to as many employees as possible, but we will have to lay off 30 percent or more for at least two to three months until September or October.”
“While demand in the coming six months is stabilizing, it is at a significant reduction and clear that customers have little confidence in the forecasts,” Fabricated Metal Products said. “Export orders to Brazil, South Africa, [and the] Middle East are largely cancelled for balance of 2020.”
“Uncertainty regarding our industry and business has not improved,” Petroleum & Coal Products respondents said. “We are developing the 2021 budget around multiple scenarios.”
“Incoming orders are slow,” Furniture & Related Products respondents said. “This is usually our busiest time of the year, but production is reduced due to lack of demand. Additional layoffs expected.”
“General business conditions are in a general slowing pattern,” Nonmetallic Mineral Products respondents said. “Many of the plants are on reduced hours and/or furloughs. About 20 percent to 25 percent of plants are scheduled to be consolidated in the next six months to improve margins and profitability.”
The report lists numerous index reports, indicating signs of improvement: the New Orders Index registered 61.5 percent, an increase of 5.1 percentage points. The Production Index registered 62.1 percent, up 4.8 percentage points. The Backlog of Orders Index registered 51.8 percent, an increase of 6.5 percentage points. The Employment Index registered 44.3 percent, an increase of 2.2 percentage points.
The Prices Index registered 53.2 percent, up 1.9 percentage points. The New Export Orders Index registered 50.4 percent, an increase of 2.8 percentage points. The Imports Index registered 53.1 percent, a 4.3-percentage point increase.
Indexes registering declines include, the Supplier Deliveries Index registered 55.8 percent, representing a decline of 1.1 percentage points. The Inventories Index registered 47 percent, a 3.5 percentage decline.