US ISM Manufacturing PMI June Preview: Will the pandemic thwart a second pending recovery?

  • Manufacturing PMI forecast to rise to near expansion.
  • Factory sector had been in a two year decline.
  • Pandemic collapse projected to be erased in June.
  • May retail sales and consumer confidence in May and June could encourage manufacturing.
  • Good PMI numbers will further ease the recent risk-aversion dollar rally.

American manufacturing had been in a two year decline moderated by a two month recovery after the signing of the China trade pace on January 15 and before the coronavirus shutdown plunged the sector to its lowest point since the financial crisis.

After reaching a post-recession peak of 60.8 in August 2018 the escalating dispute with China had brought the index to 47.8 by December 2019.

With the US closures all but ended despite a return of the virus in some states, factories appear poised to revive. Will this second attempt be thwarted by another defensive shutdown?

The purchasing managers’ index from the Institute for Supply Management (ISM) is forecast to rise to 49.5 in June from 43.1 in May. This would be the best score since the government ordered shuttering drove PMI from 50.9 in January to 41.5 in April.

The employment index is expected to climb to 43.0 from 32.1 in May and 27.5 in April which was the second lowest reading in the 72 years of the survey. Only the June 1948 score of 27.2 in the severe post-war recession was worse.  The price paid index is predicted to rise to 43 in June from 32.1.  New orders are expected to gain 36.1 from 31.8 in May.


Retail sales and consumption

Manufacturing executives may be encouraged by May’s substantial recovery in consumption.

Figures in retail sales, durable goods and personal spending confirm the April bottom and May reversal. Retail sales plunged 14.7% in April, by far the largest one month decline on record and then surged 17.7% in May, more than double its 8% forecast. 

Durable goods, a subset of sales fell 18.1% in April and rebounded 15.8% in May, beating the 10.9% prediction.  Non-defense capital goods, the business investment proxy, dropped 6.5% in April, then rose 2.5% in May, much more than the 1% estimate.  Personal spending climbed 8.2% in May following the 12.6% April tumble and was the only consumption gauge to miss its forecast at 9%.  

Consumer confidence

Consumer confidence has also seen a marked revival.  

The Michigan survey of consumer sentiment has recovered from its April low. The two month drop from February to April in each of the three indexes, sentiment, current conditions and expectations was the steepest in the 68 year series. 


The current conditions index rebounded the most (April 74.3, June 87.1) followed by overall sentiment (April 71.8, June 78.1) and then expectations (April 70.1, June 72.3). 

Conference Board figures showed a sharper recovery. The consumer confidence index jumped to 98.1 in June from 85.9 in May, well ahead of the 91.6 forecast. The present situation index climbed to 86.2 from 68.4 and the expectations index rose to 106.0 from 97.6.


Labor Market

Non-farm payrolls added 2.5 million jobs in May an enormous 10.5 swing from the 8 million decline forecast. The ADP private payrolls loss at 2.76 million was less than a third of the 9 million predicted.

Further improvement is anticipated in June with NFP and ADP forecast to add 3 million jobs each.


The ingredients are in the mix for a strong ascent of the US manufacturing sector.

The China trade deal remains intact and in the best interests of both nations. Americans appear disposed to resume a good portion of their normal spending habits abetted by clearing purchases deferred by two months of closed stores.  The economy in most of the country has been opened and the new restrictions in Texas, Florida and other places have been limited to compare to those of March and April. In total 12 states have paused or rolled back their reopenings.

The wildcard in the progress of the second wave of the pandemic.  If it again forces widespread closures the economy will retract all of its improvement of the last two months.

Equities just closed their best quarter in decades anticipating the recovery and reversing the panic decline of March.  The Dow rose 17.8% it best since 1987, the S&P 500 gained nearly 20%, its best since 1998 and the Nasdaq jumped 30.6%, its strongest since 1999.

The dollar gave back some of its two-week rally on Monday as consumer confidence in June rose more than anticipated.  

Those are the directions for optimistic PMI numbers, but they are not the only possibilities.


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