The Purchasing Managers' Index (PMI) stood at 54.2 percent in July, up 1.6 percentage points from the June reading. Any reading above 50 percent indicates the manufacturing sector is generally expanding.
After three months of contraction amid mounting COVID-19 fallout, the economic activity in the manufacturing sector rebounded in June, as states gradually eased lockdown measures and reopened their economies.
"In July, manufacturing continued its recovery after the disruption caused by the coronavirus (COVID-19) pandemic," Timothy Fiore, chair of the ISM's manufacturing business survey committee, said in a statement.
"Panel sentiment was generally optimistic (two positive comments for every one cautious comment), continuing a trend from June," Fiore said.
Sarah House and Tim Quinlan, economists at Wells Fargo Securities, said in an analysis that the July PMI was a bit better than expected and "marked the highest reading in more than a year," adding that details paint a brighter picture than previous months as well.
However, they noted that manufacturing output still remains "woefully depressed," down 11 percent from its pre-pandemic peak according to the Federal Reserve's June industrial production report.
"With depressed global growth, high unemployment and a resurgent virus, the sector continues to face strong headwinds," the economists said, while adding that manufacturers may be poised for a relatively quick recovery compared to services in this particular cycle.
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