US manufacturing remains in contraction but chemicals healthy

RIO DE JANEIRO (ICIS)–US manufacturing activity remained in contraction territory in June but output in the chemicals sector was healthy on the back of healthy new orders, the Institute of Supply Management’s (ISM’s) purchasing managers’ index (PMI) survey showed on Monday.

The PMI stood at 48.5% in June, down from 48.7 points in May.

The contraction in June was the third consecutive monthly one, and the 19th in the last 20 months.

Chemicals, however, posted healthy activity with one chemicals player reporting in the ISM survey “high volumes of customer orders”.

In plastics and rubber, a respondent described increased orders on the back of seasonal restocking, but the sector overall remained in contraction territory.

“Demand was weak again, output declined and inputs stayed accommodative. Demand slowing was reflected by the New Orders Index improving to marginal contraction, New Export Orders Index returning to contraction, Backlog of Orders Index dropping into stronger contraction territory and Customers’ Inventories Index moving into the low side of the ‘just right’ range, neutral for future production,” said Timothy R Fiore, chair of the ISM’s committee compiling the PMI index.

“Output (measured by the Production and Employment indexes) declined compared to May, with a combined 3.5-percentage point downward impact on the Manufacturing PMI calculation. Panelists’ companies reduced production levels month over month as head count reductions continued in June.”

According to ISM, eight manufacturing industries reported growth in June: printing and related support activities; petroleum and coal products; primary metals; furniture and related products; paper products; chemical products; miscellaneous manufacturing; and nonmetallic mineral products.

Nine industries reported contraction: textile mills; machinery; fabricated metal products; wood products; transportation equipment; plastics and rubber products; food, beverage and tobacco products; electrical equipment, appliances and components; and computer and electronic Products.

ICIS VIEW
Kevin Swift, economist at ICIS, highlighted how both new orders and order backlogs fell compared with May.

“The reading came below expectations of improvement. The expansionary reading in March ended 16 months of contraction in manufacturing but since then, the trend has been soft. June marks a third contractionary reading and was disappointing… The chemical industry gained for the sixth month after 16 months of decline.”

“New orders and order backlogs, when combined with the reading on inventories, are good indicators of future activity. Inventories contracted at faster pace as well. An uptick in orders could translate into higher production.”

Earlier on Monday, analysts at S&P Global said manufacturing in Brazil – the Americas’ second largest economy – had recovered slightly from floods-hit May, although some economic challenges such as the depreciation of the Brazilian real were putting a cap on growth prospects, they added.

US MANUFACTURING
June 2024

Index	Series Index Jun	Series Index May	Percentage Point Change	Direction	Rate of Change	Trend* (Months)
Manufacturing PMI	48.5	48.7	-0.2	Contracting	Faster	3
New Orders	49.3	45.4	+3.9	Contracting	Slower	3
Production	48.5	50.2	-1.7	Contracting	From Growing	1
Employment	49.3	51.1	-1.8	Contracting	From Growing	1
Supplier Deliveries	49.8	48.9	+0.9	Faster	Slower	4
Inventories	45.4	47.9	-2.5	Contracting	Faster	17
Customers’ Inventories	47.4	48.3	-0.9	Too Low	Faster	7
Prices	52.1	57.0	-4.9	Increasing	Slower	6
Backlog of Orders	41.7	42.4	-0.7	Contracting	Faster	21
New Export Orders	48.8	50.6	-1.8	Contracting	From Growing	1
Imports	48.5	51.1	-2.6	Contracting	From Growing	1

Thumbnail shows an automobile manufacturing line. Image by Anna Szilagyi/EPA-EFE/Shutterstock)