U.S. Factory Gauge Jumps, Inflated by Longer Delivery Times

(Bloomberg) -- U.S. manufacturing expanded more than forecast last month as a gauge of supplier-delivery times shot up amid robust orders and production, data from the Institute for Supply Management showed on Monday.

Highlights of ISM Manufacturing (June)

  • Factory index climbed to 60.2 (est. 58.5), matching the second-highest since 2004, from 58.7; readings above 50 indicate expansion
  • Gauge of supplier deliveries jumped to 68.2, the second-highest since April 1979, from 62; figure shows lead times increasing as producers have trouble meeting demand
  • Measure of new orders little changed at 63.5 after 63.7
  • Index of production increased to 62.3 from 61.5

Key Takeaways

While indexes of orders, production and factory employment remained elevated, the ISM’s main gauge of June factory activity was inflated by a surge in the group’s measure of supplier deliveries, indicating lengthening lead times.

The delays potentially reflect purchasing managers’ efforts to acquire materials ahead of President Donald Trump’s planned tariffs on Chinese products, which would follow levies on steel and aluminum from around the world. Such demand, coming on top of steady consumption and business investment, is testing capacity limits of both manufacturers and the transportation sector.

“Lead-time extensions, steel and aluminum disruptions, supplier labor issues and transportation difficulties continue,” Timothy Fiore, chairman of the ISM Business Survey Committee, said in a statement. “Demand remains robust, but the nation’s employment resources and supply chains continue to struggle. Respondents are overwhelmingly concerned about how tariff related activity is and will continue to affect their business.”

Supply-chain disruptions are also helping to push up input prices. The ISM’s latest measure of costs of raw and other materials used in manufacturing fell in June but remained close to a seven-year high.

U.S. Factory Gauge Jumps, Inflated by Longer Delivery Times

What Our Economists Say

Specific comments from manufacturers suggest that anxieties related to tariffs continue to build, but aggregate conditions look solid. New orders, production and even export orders are all showing little evidence of trade-related downdrafts.

-- Carl Riccadonna and Niraj Shah, Bloomberg Economics

Read more for the full reaction note from Bloomberg Economics

Other Details

  • Employment gauge was little changed at 56 after 56.3
  • Index of factory order backlogs fell to 60.1 from 63.5
  • Measure of export orders increased to 56.3 from 55.6
  • Gauge of prices paid for materials declined to 76.8 from 79.5
  • 17 of 18 industries reported growth in June; no industry contracted

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