Key Manufacturing Metrics Gain Ground

August 12, 2013

Key Manufacturing Metrics Gain GroundTwo key manufacturing industry metrics—the Institute for Supply Management’s Purchasing Managers Index (PMI) and the U.S. Department of Commerce Durable Goods benchmark—indicate that the manufacturing sector is gaining momentum in the third quarter.

On August 1, the Institute for Supply Management (ISM) released its July Report on Business® for the U.S. manufacturing sector, including the much-anticipated PMITM.

The PMITM leapt 4.5 percentage points to reach 55.4 in July, registering a 12-month high for the index and the fastest growth rate in two years. The overall economy continues to grow as well, with July representing the 50th consecutive month of expansion.

Economists hope this robust factory improvement will bolster overall economic growth, which has been positive but lackluster the past three quarters. What’s more, factory expansions could provide key support to the all-important job market.

The monthly ISM assessment is based on benchmarks for 10 key indices, including new orders, production, employment, prices, backlogs, and others. Six of the 10 constituent indices expanded in July, with new orders (+6.4) and employment (+5.7) among the fastest-growing segments.

It was production, though, that stole the show in July, soaring 11.6 points to 65, its highest reading since May 2004.

The U.S. Department of Commerce, meanwhile, reported on July 25 that increased business spending and rising aircraft demand are driving orders for long-lasting factory products.

Durable goods—those meant to last more than three years—gained 4.2% in June. Orders for automobiles and aircraft led the advances, with the latter jumping 31.4%.

Economists say these latest figures bolster hopes that growth is beginning to accelerate. The overall economy increased at an annualized rate of just 1.8% in the first quarter, before slowing to an anticipated 1.0% the second quarter; some are predicting growth at a rate of 2.5% for the second half of the year, however.

One reason for this optimism is an apparent return to growth overseas; a recent survey of Eurozone purchasing managers showed that business activity in July increased for the first time in 18 months.

“We know that purchasing data is a leading indicator for manufacturing activity,” says DVIRC Lead Researcher Sylvia Wower. “These gains in the PMI hopefully mean that we will see demand for manufactured goods climbing in the very near future.

“Despite this positive news, the Federal Reserve announced on Wednesday that it would continue its monthly purchases of $85 billion in mortgage and Treasury securities,” she continued. “They also gave no hint of plans to taper their bond-buying program as they try to avoid deflation.”