Aug 18, 2020

Manufacturing business activity increased in July, reaching its highest level of expansion since March 2019, according to the Institute for Supply Management’s “Manufacturing Report on Business”. The labor market for manufacturing, on the other hand, continued to contract for now though signs are pointing to improvement.

The report’s PMI measure of overall manufacturing activity rose to a reading of 54.2% in July from 52.6% in June. The figure indicates expansion in the overall economy for the third month in a row after a contraction in April, which ended 131 consecutive months of growth.

“The PMI signaled a continued rebuilding of economic activity in July and reached its highest level of expansion since March 2019, when the index registered 54.6%,” said Timothy Fiore, chair of the Institute for Supply Management’s Manufacturing Business Survey Committee.

PMI above 42.8% over a period of time, generally indicates expansion of the overall economy, according to the ISM. Meanwhile, a PMI reading of above 50% indicated that the manufacturing economy is generally expanding.

Fiore noted that manufacturing continued to recover after the disruption caused by the Covid-19 response. The pandemic had hit the US economy hard in the second quarter. The US Bureau of Economic Analysis reported on Friday that US gross domestic product had fallen 32.9% in that quarter.

The employment picture remains difficult for now, but is showing signs of improvement. While the employment index, part of the PMI still indicated contraction in the manufacturing labor market, improved to 44.3% in July from 42.1% in June. It was the 12th month of contraction.

“Long-term labor market growth remains uncertain, but strong new-order levels and an expanding backlog signify potential strength for the rest of the third quarter,” Fiore said.

An employment index above 50.8%, over time, generally refers to an increase in the BLS data on manufacturing employment.

For the ISM’s report on manufacturing, data is based on survey responses from purchasing and supply executives across the US. Some respondents reported additional layoffs ahead as customers shutdown and incoming orders were slow. Other firms reported an increase in demand.

The PMI is a composite index based on the diffusion index of five indexes of with equal weights: New orders (seasonally adjusted), production (seasonally adjusted), employment (seasonally adjusted), supplier deliveries (seasonally adjusted) and inventories.

Source: Staffing Industry Analysts

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