The Institute for Supply Management (ISM) manufacturing purchasing managers index (PMI) came in at 49.0 in June, indicating contraction in U.S. manufacturing for a fourth straight month. The latest reading was above the forecast of 48.8.
Here is an excerpt from the latest report:
Spence continues, “In June, U.S. manufacturing activity slowed its rate of contraction, with improvements in inventories and production the biggest factors in the 0.5 percentage point gain in the Manufacturing PMI®.
Here is the table of PMI components.
Background on ISM Manufacturing PMI
The ISM Manufacturing Index aims to measure the health of the manufacturing sector through a survey. The ISM Manufacturing Index is a diffusion index, meaning that a reading above 50 indicates expansion in the sector compared to the previous month and a reading below 50 indicates contraction. Additionally, the distance from 50 indicates the extent of expansion or decline.
ISM Manufacturing PMI and Recessions
What sort of correlation does the ISM Manufacturing PMI have with recessions? The month before a recession, the index has ranged between 42.1 and 66.2 with an average of 49.7, a level we currently sit below. As you can see, the index's value at the start of recessions has had quite a range, some in expansion territory and some in contraction territory. Therefore, it is more useful to look at the behavior of the PMI during those recessions (always contracting) and the behavior of the PMI outside of recessions (mostly expanding).
Here is a closer look at the series beginning at the turn of the century. The latest reading keeps the index in contraction territory for a fourth straight month after two months in expansion. Prior to that, the index contracted for 26 consecutive months from November 2022 to December 2024, the longest streak on record.
ISM PMI Comparison: Manufacturing vs. Services
The next chart offers a comparison between the two Purchasing Managers' Indexes provided by the Institute for Supply Management. See the latest update on the Services PMI here.
ETFs associated with industrials and manufacturing include: First Trust Industrials/Producer Durables AlphaDEX Fund (FXR), Industrial Select Sector SPDR Fund (XLI), Vanguard Industrials ETF (VIS), and iShares U.S. Industrials ETF (IYJ).
