Loading ...[What they are saying? “Naturally, after an economy has been shut down and then reopened by government fiat, huge numbers of respondents will answer that business conditions, orders, production, etc. are better than they were when the economy was fully or partly shut down,” wrote MFR Inc. chief economist Joshua Shapiro in a note to clients.]
ISM manufacturing index climbs to 15-month high of 54.2%
The numbers: American manufacturers expanded in July for the third month in a row, but senior executives say production remains well below pre-pandemic levels and not all the jobs are coming back anytime soon.
The Institute for Supply Management said its manufacturing index rose to 54.2% from 52.6% in June, marking the highest level in 15 months. Economists surveyed by MarketWatch had forecast the index to total 53.6%.
The high level of the index is somewhat misleading, economists point out.
Although readings over 50% indicate growth, the index does not measure the actual amount of production or tell how much it has improved. The survey basically asks executives if their businesses are doing better or worse compared to the prior month.
“Diffusion indexes like the ISM capture rates of change of activity, not levels, and output remains depressed,” said chief economist Ian Shepherdson of Pantheon Macroeconomics.
Other economic signposts such as durable-goods orders, industrial production and the monthly U.S. jobs report show that companies are producing significantly fewer goods and employing fewer workers than they were before the pandemic.
What happened: The ISM’s indexes for new orders, production and employment all rose.
The index for new orders jumped to 61.5% from 56.4%, while the production gauge rose to 62.1% from 57.3%.
The employment index, meanwhile, edged up to 44.2% from 42.1%, but numbers below 50% signal that companies are still cutting jobs.
“Incoming orders are slow. This is usually our busiest time of the year, but production is reduced due to lack of demand. Additional layoffs expected,” said an executive at a furniture maker.
“Overall business remains down almost 70%, said an executive at a manufacturer of transportation equipment. “We are hanging on to as many employees as possible, but we will have to lay off 30% or more for at least two to three months until September or October.”