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Indicators Suggest Manufacturing, Economy May Be Slipping Amid Recovery

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Indicators Suggest Manufacturing, Economy May Be Slipping Amid Recovery

FreightWaves, a provider of media and analytics for the transportation and shipping industries has partnered with news and data solution Benzinga in producing a series of actionable, logistics-driven, economic insights.

The following will look at the economic recovery following the recent COVID-19 coronavirus lockdowns.

Industry Optimism Thwarted By Increasing Capacity

The Purchasing Managers Index (PMI) from the Institute for Supply Chain Management (ISM) gauges the strength of manufacturing through monthly surveys of company executives in 18 separate subsectors.

According to the FreightWaves SONAR platform, a proprietary, real-time logistics data tracking solution, PMI rose from a historic low of 43.1 in May to 52.6 in June.

Image: Institute for Supply Chain Management PMI metrics.

The jump in PMI comes as economic activity in the manufacturing sector expanded for a second straight month after April’s contraction, which previously ended 131 consecutive months of growth.

“June signifies manufacturing entering an expected economic expansion cycle after the disruption caused by the coronavirus (COVID-19) pandemic,” suggested Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management.

“As predicted, the growth cycle has returned after three straight months of COVID-19 disruptions. 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,” Fiore continued.

Adding new orders, day-to-day movements, and Flatbed Outbound Tender Rejections (FOTRI), a supply and demand metric that measures trailers hauling construction material, data shows capacity tightening on an account of increased demand in construction or manufacturing materials being shipped.

Image: Chart of PMI and FOTRI data.

In the chart above, prior to the ISM release, FOTRI was rising steadily, pointing to the recovery of a badly beaten economy. Now, however, FOTRI, a measure updated on a daily basis, suggests trucking capacity is increasing and less construction and building materials are in motion.

The development is puzzling, but may be explained by the recent resurgence of COVID-19 cases in several Southern states, including Florida, Alabama, Georgia, Tennessee, South Carolina, North Carolina, and Texas. With cases mounting and hospital systems overwhelmed, states have scaled back their recovery initiatives, likely slowing growth in construction and building.

"One of the other factors to consider in the recent tightening of capacity is the seasonal ramp-up in activity that typically occurs near the 4th of July,” added Anthony Smith, Director of Economics at FreightWaves. “It is too early to call a full recovery within manufacturing, especially with many states reissuing shutdowns. There are many headwinds at play but the high-frequency data within SONAR will aid in deciphering industry trends."

To follow the recovery and emerging trends more closely, please visit FreightWaves for more information.

Photo by Albin Berlin from Pexels.

 

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Posted-In: Anthony Smith Freightwaves ISM PMI SONAR Timothy R. FioreMarkets