Employment, factory orders improved, says ISM

Staff -- Industrial Distribution, 8/1/2005

Generally positive signs in key areas such as employment, production and overall manufacturing were found in the June Report on Business, published by the Institute for Supply Management.

ISM's monthly report is drawn from data compiled from interviews with purchasing and supply executives in more than 400 industrial companies.

In the job market, ISM's Employment Index declined in June for the second straight month. However, this followed an 18-month period of expansion. The index registered 49.9 percent in June compared to 48.8 percent in May.

Several industries showed growth in employment during June: petroleum; furniture; rubber & plastic products; textiles; and wood & wood products.

Economic observers hope that these employment numbers may be part of an improvement in the overall manufacturing sector, an area of concern nationwide. In addition, the U.S. Department of Commerce had earlier reported that the American economy had added some 146,000 jobs in June—less growth than was hoped for, but still reason for optimism. Overall, the economy has lost 96,000 factory jobs since August, 2004, The New York Times reported.

Earlier, the Department of Commerce had found that factory orders were up 2.9 percent for May, the Times reported. Economists hope that these and other improved production numbers can lead to more jobs, especially in the hard-hit manufacturing and factory sectors.

Along these lines, ISM's numbers on production for June could also be seen as reason for at least slight optimism, as the Production Index came in at 55.6 percent for June, 0.7 percentage points higher than May. This was the 26th consecutive month of growth in the index.

Industries reporting a production increase included petroleum, textiles, chemicals, and industrial/commercial equipment and computers.

Elsewhere, ISM found that general economic activity in the manufacturing sector grew in June for the 25th consecutive month, while the overall economy grew for the 44th consecutive month.

In addition, ISM's New Orders Index improved, with a reading of 57.2 percent—more than five points higher than the 51.7 percent registered in the previous month. Among the industries showing improvement with their New Orders numbers were textiles; rubber & plastics; chemicals; and paper products.

"The manufacturing sector grew for the 25th consecutive month in June based on the ISM data. The improved rate of growth in New Orders is [also] quite encouraging...These are the most positive signs that we have seen in several months," said Norbert Ore, chairman of the Institute for Supply Management Manufacturing Business Survey Committee.

While most observers found somewhat optimistic signs, concerns were found, especially in the area of pricing.

ISM's prices index showed that manufacturers were still paying higher prices through June, albeit at a declining rate. This is the 40th consecutive month the index has registered higher prices. However, June's index, 50.5 percent, was more than seven percentage points lower than May's reading of 58 percent.

In June, 22 percent of supply executives reported paying higher prices and 21 percent reported paying lower prices, while 57 percent reported that prices were unchanged from the preceding month.

And, of course, it was no surprise to note that energy and fuel prices were among the more worrisome areas for manufacturers.

"High energy costs ... are still major concerns to purchasers," Ore said.