Economist's Insights

Slower Supply Chain Boosted Manufacturing PMI to Second Strongest Since 2004:

Jul 2, 2018

The ISM’s manufacturing index rose unexpectedly in June, primarily because of a notable slowdown in supplier delivery times. The headline PMI, which was expected to decline marginally to 58.5, moved up from 58.7 to 60.2 and matched its second best level since 2004. Four of the five components that drive the headline saw only minor changes. The indexes tracking production (best since January) and inventories (second lowest of the year) were slightly stronger while new orders (second highest in four months) and employment (below the 12-month average) ticked lower. But the 6.2-point increase in the supplier deliveries index accounted for over 80% of the PMI’s net monthly change. That index, which tracks how long it takes manufacturers to receive materials and supplies for production, jumped to its second highest level since 1969. Slower delivery times are generally associated with a brisker pace of economic activity. And while there were a couple of mentions of strong economic activity in the comments section, most of the space was saved for complaints and cautions. A couple of areas that multiple respondents vented about the most were multifaceted concerns around tariffs and a shortage of transportation capacity.