The Institute for Supply Management’s monthly index, a closely watched measure of U.S. manufacturing activity, rose 9.5 percentage points in June to 52.6 from the May reading of 43.1, its largest jump in 40 years. Readings above 50 indicate expansion in manufacturing activity. More factories reported growth in orders and production, and the upward move in the index to a 14-month high is a significant reversal of the last two months of activity, in which the index registered decade lows.
The upturn was consistent with the performance of the RSM Manufacturing Outlook Index, which recently showed a remarkable rebound of sentiment in the U.S. manufacturing industry. However, while the worst might be behind us, the manufacturing sector may experience more damage due to pullbacks and shutdowns of business across the economy as the pandemic intensifies again. We expect this to appear in the July sentiment and survey data, thus we do urge caution in interpreting the data going forward.
The ISM’s forward-looking new orders sub-index increased 24.6 points in June to 56.4, the biggest increase on record back to 1948. The production gauge posted a similar gain, its strongest monthly advance since 1952. The employment index, meanwhile, rose 10 points from 32.1 in May to 42.1 in June, reflecting more people returning to work. It is important to note the level of employment remains well below pre-pandemic levels.
While the most recent data indicates an uptick in business activity, we expect the recovery to be slow, with the renewed upturn in COVID-19 infections across the South and West in recent weeks posing a downside risk.