- The Institute for Supply Management’s manufacturing index climbed back to growth territory in June as states reopened their economies.
- The key industry gauge leaped 9.5 points to 52.6 last month, notching its biggest single-month increase since 1980. Economists surveyed by Bloomberg expected a reading of 49.8.
- New orders and production both breached the key threshold of 50, while industry employment landed at 42.1 after a 10 percentage point improvement.
- Despite the strong improvement, US manufacturing is positioned to “face major challenges” from weak demand, lasting supply chain disruptions, and rebounding virus cases, Gregory Daco, chief US economist at Oxford Economics, said.
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A key measure of US manufacturing leaped back into growth territory in June as factories reopened and state economies turned back online.
The Institute for Supply Management’s manufacturing index surged 9.5 points to 52.6 last month, its biggest increase since 1980. June’s increase brings the metric to a 14-month high and pushes it above the key threshold of 50 for the first time since February.
Economists surveyed by Bloomberg expected the gauge to reach 49.8 last month. Readings above 50 indicate the industry is expanding, while a reading below the level indicates broad shrinkage.
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ISM’s measure for new orders improved 24.6 percentage points to 56.4, and its production gauge climbed 24.1 percentage points to 57.3. Employment remained in contractionary territory, landing at 42.1 in June after reading 32.1 the month prior.
In all, 13 of the 18 manufacturing sectors reported growth in June. The four industries declining through the month were transportation equipment, primary metals, fabricated metal products, and machinery.
Yet the report doesn’t place the manufacturing industry in the clear. The return to growth follows three months of deep contraction and arrives as the US faces new risks. Spiking coronavirus case counts threaten to shut down factories all over again, and lasting pandemic fallout will likely drag on the industry’s rebound.
“Activity likely bottomed in Q2, however manufacturing will face major challenges that will drag on its recovery,” Gregory Daco, chief US economist at Oxford Economics, said. “Looking ahead, weak demand, lingering supply chain disruptions, somewhat tighter financial conditions, historically low oil prices, and highly elevated uncertainty are poised to make for a lacklustre recovery.”