2020.07.0114:48:00UTC+00U.S. Manufacturing Activity Unexpectedly Expands In June

After reporting contractions in U.S. manufacturing activity for three straights months, the Institute for Supply Management released a report on Wednesday showing activity unexpectedly expanded in the month of June.

The ISM said its purchasing managers index jumped to 52.6 in June from 43.1 in May, with a reading above 50 indicating an expansion in manufacturing activity.

Economists had expected the index to climb to 49.5, which have still indicated a modest contraction in manufacturing activity.

"As predicted, the growth cycle has returned after three straight months of COVID-19 disruptions," said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee.

He added, "Demand, consumption and inputs are reaching parity and are positioned for a demand-driven expansion cycle as we enter the second half of the year."

The headline index recorded its largest increase since August 1980, as the new orders index spiked to 56.4 in June from 31.8 in May and the production index soared to 57.3 from 33.2.

The report said the employment index also surged up to 42.1 in June from 32.1 in May, indicating a slower pace of job losses in the manufacturing sector.

On the inflation front, the prices index jumped to 51.3 in June from 40.8 in May, pointing to an increase in raw materials prices after four consecutive months of declines.

A note from economists at Oxford Economics said manufacturing activity likely bottomed in the second quarter but noted the sector will face major challenges that will drag on its recovery.

"Looking ahead, weak demand, lingering supply chain disruptions, somewhat tighter financial conditions, historically low oil prices and highly elevated uncertainty are poised to make for a lackluster recovery," the economists said.

They added, "Further, with the number of coronavirus cases now rising in many parts of the country, including several states where manufacturing activity is concentrated, the nascent recovery risks being curtailed by the re-imposition of lockdowns."

The ISM is scheduled to release a separate report on U.S. service sector activity in the month of June next Monday.