Manufacturing activity in the US really saw a bounce in June as the ISM Manufacturing report surged back above 60 from last month’s reading of 58.7. This month’s reading of 60.2 was well ahead of consensus expectations and was tied for the second highest reading of the current expansion. What’s really impressive about this month’s report is that as the ISM noted in its release, “The past relationship between the PMI® and the overall economy indicates that the PMI® for June (60.2 percent) corresponds to a 5.2 percent increase in real gross domestic product (GDP) on an annualized basis.”
The table below summarizes the internals of this month’s report and shows relatively strong breadth. On a m/m basis, just four out of ten components showed a m/m decline and just three saw a y/y drop. The biggest increases in June relative to May were Supplier Deliveries and Imports, while Backlog Orders saw the largest decline. The big increase in Supplier Deliveries took that index to its highest level in just over 14 years (chart below) and suggests supplies are constrained which is hurting overall economic growth.
Tight supply chains were also evident in the commentary of this month’s report. As shown in the image below, there were numerous references made to this subject (yellow highlights), but just as big, if not a bigger issue for manufacturers is the increased uncertainty over trade and tariffs (blue highlights). Both of these factors are ultimately likely to lead to price increases, which is a trend we are already seeing as 31 commodities were reported as being up in price (most since May 2011), and 8 commodities were in short supply.