Economic activity in the manufacturing sector expanded in August for the eighth consecutive month, according to the latest ISM Manufacturing PMI report.
The report was issued by Susan Spence, MBA, chair of the Institute for Supply Management (ISM) manufacturing business survey committee: “The Manufacturing PMI registered 54.6% in August, 1 percentage point below the July figure of 55.6%. The overall economy continued in expansion for the 22nd month in a row. (A Manufacturing PMI above 47.5%, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index expanded for the eighth consecutive month after four straight readings in contraction, registering 53.7%, down 3 percentage points compared to July’s figure of 56.7%. The August reading of the Production Index (58.3%) is 0.2 percentage point lower than the 58.5% recorded in July. The Prices Index remained in expansion (or ‘increasing’ territory), registering 71.1%, the same reading as July. The Backlog of Orders Index registered 51.8%, down 3.2 percentage points compared to the 55% recorded in July. The Employment Index reading of 51.2% is down 1.6 percentage points from July’s figure of 52.8%.”
Spence added, “The Supplier Deliveries Index indicated slowing performance for the ninth month in a row after one month in ‘faster’ territory. The reading of 59.3% is up 0.4 percentage point from its July reading of 58.9%. (Supplier Deliveries is the only ISM PMI Reports index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 50.6%, down 0.6 percentage point compared to July’s reading of 51.2%. The Customers’ Inventories Index reading of 42.8% is 2.1 percentage points higher compared to the 40.7% recorded in July. The New Export Orders Index gained 0.2 percentage point in August for a reading of 53.2% versus 53% last month. The Imports Index registered 52.5%, a loss of 3.2 percentage points since July’s reading of 55.7%.”
Spence continued, “In August, U.S. manufacturing activity remained in expansion territory, though it has lost ground in a number of key measures — namely, the New Orders, Backlog and Imports indexes. Of the five subindexes that make up the PMI, the only one that grew faster than last month was Supplier Deliveries (up 0.4 percentage point), indicating a continuing slowdown of the supply chain. In August, 42% of the comments were positive and 58% negative, with a 1-to-1.4 ratio of positive to negative sentiment. Pricing volatility was mentioned in 57% of negative comments, the Iran war 30%, increasing lead times 46% and tariffs 29%. (Most comments mentioned multiple factors.) In August, three of four demand indicators (the New Orders, Backlog of Orders and New Export Orders indexes) remained in expansion, and the Customers’ Inventories Index remained in ‘too low’ territory, contracting at a slower rate. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production.”
Spence said, “Regarding output, the Production Index expanded for the 10th month in a row (though at a slower pace) with the positive-to-negative comment ratio dropping in August (2.2 positive comments for every negative one, versus a 3.3-to-1 ratio in July). The Employment Index remained in expansion but lost 1.6 percentage points. The positive-to-negative comments ratio on Employment also dropped (1.3-to-1, compared to 1.5-to-1 the previous month). Finally, inputs (defined as supplier deliveries, inventories, prices and imports) were mixed, with the Supplier Deliveries Index increasing another 0.4 percentage point, the Inventories Index declining 0.6 percentage point but staying in expansion, and Prices Index repeating its July reading of 71.1%, and the Imports Index losing 3.2 percentage points, to 52.5% versus 55.7% in July.”
Spence concluded, “Looking at the manufacturing economy, 22% of the sector’s gross domestic product (GDP) contracted in August, compared to 20% in July, and 2% of manufacturing GDP was in strong contraction (defined as a composite PMI of 45% or lower), compared to zero% in July. The share of sector GDP with a PMI at or below 45% is a good metric to gauge overall manufacturing weakness. Of the six largest manufacturing industries, five (Transportation Equipment; Petroleum & Coal Products; Computer & Electronic Products; Machinery; and Food, Beverage & Tobacco Products) expanded in August.”
The 15 manufacturing industries reporting growth in August — listed in order — are primary metals; electrical equipment, appliances & components; miscellaneous manufacturing; textile mills; furniture & related products; nonmetallic mineral products; paper products; transportation equipment; fabricated metal products; petroleum & coal products; printing & related support activities; computer & electronic products; plastics & rubber products; machinery; and food, beverage & tobacco products. The two industries reporting a contraction in August are wood products and chemical products.
