Great piece of news leading into the three-day Fourth of July weekend: The June ISM manufacturing index increased last month to 55.3 from 53.5 in May, confounding analyst expectations for a further decline. Readings above 50 indicate that the sector is expanding. Several components of the index were especially encouraging:
- New orders, a leading indicator of future production activity, rose from 51.0 to 51.6.
- The employment component increased from 58.2 to 59.9, meaning that hiring demand is firming.
- Perhaps most intriguing, the prices-paid component fell to 68.0 in June, down from 76.5 in May and 85.5 in April. A decline in the rate of increase for input prices eases a significant burden that had been weighing down production activity in recent months.
Overall, the report suggests that temporary factors – supply chain disruptions related to the disasters in Japan plus the spike in oil and commodity prices – played a significant role in the recent weakness. As these factors are reversed, the manufacturing sector is poised to play a pivotal role in supporting second-half GDP growth.