Headline ISM prints have been bereft of meaning for three months running, due not just to the myriad inherent absurdities of looking at PMIs in and around the kind of outright economic collapse the world witnessed in March and April, but also due to distortion from record high readings on the deliveries gauge.
Every month, that’s been the obligatory caveat. In the latest read, it looks as though things have normalized further after May’s report found supplier deliveries coming off a bit.
ISM manufacturing printed 52.6 for June, well ahead of the 49.8 the market was looking for, and the first read above 50 since the onset of the pandemic.
This looks like the best number since April of last year. The range from 75 economists was 45-54, so this very nearly meets the most optimistic estimate.
“As predicted, the growth cycle has returned after three straight months of COVID-19 disruptions”, ISM’s Timothy Fiore said. “Demand, consumption and inputs are reaching parity and are positioned for a demand-driven expansion cycle as we enter the second half of the year”.
Five out of 10 subindexes rose above 50. Supplier Deliveries “reached a normal level of tension between supply and demand”, the report reads.
For what it’s worth, the final read on IHS Markit’s gauge for June was revised slightly higher from the flash print on Wednesday.
It’s hard to see how this is anything other than good news — at least for right now.
You could argue (as at least one observer did) that this is already out of date. That may well be true.
But perhaps the more pertinent disclaimer is simply that while PMIs may look “V-shaped”, you shouldn’t read too much into them.
It’s fine to celebrate, but when it comes to “real” data, it’s a long climb out of the dark basement into which we tumbled in March. At least if we want to get back to pre-pandemic levels.
WHAT RESPONDENTS ARE SAYING
- “While we are seeing signs of an uptick in business activity, it is a slow recovery at this point.” (Chemical Products)
- “Gradually ramping production back in our plants. Most of our supply base continued to operate during COVID-19, so we are not seeing a significant supply risk. Will be monitoring supply chain financial health closely.” (Transportation Equipment)
- “Thankfully, we are in quite a few industries, so impact wasn’t as harsh on us and more stable. However, during the last two weeks, our bookings have grown, and supply seems to be more readily available.” (Fabricated Metal Products)
- “Difficulty keeping up with a significant increase in demand related to COVID-19. Industry is up 62.5 percent versus [a] year ago. Supply challenges throughout the supply chain. Supply could be hindered if another wave of COVID-19 hits in the fall.” (Food, Beverage & Tobacco Products)
- “Market demand for refined products has increased as statewide quarantines have been lifted, but it is still below normal volumes.” (Petroleum & Coal Products)
- “Orders have picked up and are trending toward normal production requirements [volume similar to 2019 production].” (Plastics & Rubber Products)
- “We are seeing an increase in orders as the economy starts to get rolling again. Slow and steady, sales are increasing. So far, so good.” (Primary Metals)
- “Looks like May was the bottom in terms of orders. June is stronger, and our order books are rebuilding.” (Machinery)
- “Demand is down significantly due to COVID-19 but is starting to stabilize. We are hopeful for recovery in the second half of the year.” (Miscellaneous Manufacturing)
- “The building industry continues to defy expectations, as we continue to rebound stronger from the previous month. Being an essential business across most states and a surge in DIY projects has fueled the industry forward. While the industry will follow the greater economy, we do believe it will be more resilient than most due to potential migration from larger cities and an undersupplied housing market.” (Wood Products)