The ISM Manufacturing Index is derived from a survey of purchasing managers and their outlook on overall conditions by looking at factors such as orders for durable goods, industrial production and hiring. It gives a general direction rather than the specific strength of the factory sector and manufacturing activity in the U.S. A reading above 50 is an indicator that the manufacturing sector is growing while a reading below 50 indicates a contraction
The July ISM Manufacturing report came in at a level of 51.2, below June’s index of 51.7. The index is down 12% from July of 2018, when it was at 58.7.
Decreasing average readings of the ISM Manufacturing Index over the last twelve months indicates the potential for a contractionary manufacturing sector in the near future. It is worth keeping in mind that manufacturing makes up a relatively small percentage of the US economy which would minimize the effect of the sector on the US economy should it contract. Despite decreasing readings since April, consumption continues to expand while inputs decreased. A possible explanation of this contradiction could be increased trade with other nations. But caution must still be used as major decreases in the index have preceded the last two recessions, but it is not a perfect indicator.
July 1, 2019