US manufacturing growth improves in June; hiring jumps

Friday, June 26, 2015, Vol. 39, No. 26

WASHINGTON (AP) — U.S. manufacturing growth improved in June, helped by a jump in employment.

The Institute for Supply Management, a trade group of purchasing managers, said Wednesday that its manufacturing index rose to 53.5 last month from 52.8 in May. Manufacturing activity matched January's level for the highest this year. Any reading above 50 signals expansion.

Manufacturing growth has accelerated for the past two months, evidence that U.S. factories are beginning to adapt and overcome the drags caused by a rise in the dollar's value and cheaper oil prices, two trends that date back to last fall.

The gauge of new orders rose slightly to 56 from 55.8. But manufacturers are responding to the increased demand by hiring more workers, as the employment measure increased to 55.5 from 51.7, a sign that many companies expect additional orders in the coming months and are hiring in advance.

"When it goes up like that, it's in anticipation of future orders," said Bradley Holcombe, chairman of I.S.M.'s manufacturing business survey committee.

Not every element of the index reflected growth. The index's measure of production slipped to 54 from 54.5.

Of the 18 industries surveyed, four reported contracting in June: petroleum and coal products, primary metals, plastics and rubber products, and machinery.

One maker of transportation equipment said in the survey that orders were soft in Europe and declining in Asia, while another manufacturer said that the downturn in oil and gas markets have hurt demand.

Falling oil prices forced energy companies to curtail orders for new equipment and pipelines as their margins were squeezed and rigs were shut down. The stronger dollar made U.S. goods more expensive overseas, which is weighing on sales.

Still, the negative consequences of those two trends seem to be tailing off as evidenced by the broader gain in the index and other signs of hiring among manufacturers.

The increase in the index "indicates that the drag on factories coming from the strong U.S. dollar and weak oil industry is no longer having as much negative impact as before," said Michael Gregory, deputy chief economist at BMO Capital Markets.

Oil has stabilized at around $60 a barrel. It had plunged as low as $50 a barrel at the start of the year from roughly $110 in June 2014. The decrease caused a decline in oil refining in May that weighed on factory output, according to the Federal Reserve.

The dollar, too, has steadied in recent months. While U.S. currency will continue to be a drag on exports, manufacturers say they can at least adjust production schedules to account for it.

This leaves manufacturers dependent on greater demand domestically from consumers. Solid job growth over the past year has flowed into spending on cars and trucks, which should bolster manufacturing. Auto sales rose 2 percent in May compared to the prior year, as people bought 1.64 million cars and trucks, the highest total since July 2005, according to Autodata Corp.

Payroll processor ADP said Wednesday that manufacturers added 7,000 jobs in May, their survey's first increase for that sector since February.