US manufacturing activity expands in June: ISM

[WASHINGTON] US manufacturing activity expanded in June with big jumps in all the key components, including production, new orders and employment, the Institute for Supply Management said Monday.

"This was a really strong performance," said Timothy R Fiore, chair of ISM's Manufacturing Business Survey Committee.

The ISM purchasing managers index surged nearly three points to 57.8 per cent, the highest since August 2014, on a four-point jump in new orders to 63.5 per cent.

That was far stronger than analysts had expected, with the consensus forecast just 55.0. Anything above 50 indicates growth.

The production index jumped 5.3 points to 62.4 per cent, which in turn drove a 3.7 point increase in employment to 57.2 per cent - the ninth consecutive increase.

"New orders were up strongly, supported by an increase in production. The employment expanded to meet production needs," Mr Fiore told reporters in a conference call.

However, continued uncertainty over the Trump administration's trade policy - amid multiple threats of action against key trading partners - remains a concern that could impact investment.

"This uncertainty doesn't really help the business environment," Mr Fiore said.

Of the 18 industries surveyed, 15 reported growth, but as expected in such a strong month, inventories declined, falling 2.5 points to 49 per cent, while the backlog of orders rose two points to 57 per cent.

The price index fell 5.5 points to 55 per cent, indicating prices are still increasing but at a slower rate.

Mr Fiore noted that the close of the second quarter and the need to meet production goals, as well as possible ramping up of production ahead of normal summer shutdowns and vacations could have contributed to the big jump in June.

But comments from those industries surveyed indicate orders are remaining strong and despite past reports of struggles to find qualified workers, hiring showed an uptick last month at the end of the school year, he said.

Asked if the production gains were sustainable, Mr Fiore said it is possible.

"We'll see," he said.

"If new orders continue to come in as they have been and companies can keep up... and supply chain doesn't become a constraint, there is no reason this cannot continue."

Barclays analyst Michael Gapen said he was more inclined to view this increase as a real move following a similar jump in February and March which he and his colleagues "discounted... as reflecting, among other items, excessive optimism about policy expectations."

"We take a more constructive view of the recent improvement... and see the rise as driven more by actual changes on the ground, as activity has rebounded in the second quarter relative to earlier in the year."

Ian Shepherdson, chief economist at Pantheon Macroeconomics, noted that the state of the manufacturing sector "disproportionately influences perceptions of the pace of growth," even though it should not have such a large impact on the overall economic outlook and by extension the course of action by the Federal Reserve.

So "this report will come as something of a jolt to investors comfortable with the idea that the economy has slowed to the point where the Fed need take no further action."

The central bank has been widely expected to raise the benchmark interest rate a third time later this year, but some economists have been pushing back against that certainty given the very tepid inflation rate and absence of wage pressures.

AFP