TEMPE, AZ — The Institute for Supply Management said Monday that its manufacturing index rose to 54.2 in July, up from 52.6 in June and slightly better than the 54.0 economists surveyed by FactSet expected. Figures above 50 reflect expansion, while results below that level represent contraction. July’s reading shows the industrial sector expanded for the third straight month after April’s sharp shutdown-induced contraction.
Despite the improvement, an ISM index in the mid-50s doesn’t necessarily signal a return to normal conditions in the industrial sector, says Ian Shepherdson, chief economist at Pantheon Macroeconomics. It simply says production is rising—in this case from a very depressed base.
It is worth noting that the employment component of the latest ISM report remains weak. Survey respondents expressed uncertainty across industries, with one executive in the transportation-equipment industry reporting plans to lay off at least 30 percent of workers because overall business remains down almost 70 percent. A furniture company also warned layoffs are coming, and others pointed to uncertainty coming from customers affected by the virus.
The report is good overall, with new orders jumping while inventories falling to the lowest level this year. However, the picture on employment is concerning, given that the national jobless rate is at 11 percent and a decline in claims for unemployment benefits has stalled, says Dennis De Busschere of Evercore ISI.