Economic activity in the manufacturing sector contracted in August for the sixth consecutive month, following a two-month expansion preceded by 26 straight months of contraction, according to supply executives in the latest ISM Manufacturing PMI Report.
The report was issued by Susan Spence, chair of the Institute for Supply Management (ISM) manufacturing business survey committee.
“The Manufacturing PMI registered 48.7% in August, a 0.7-percentage point increase compared to the 48% recorded in July. The overall economy continued in expansion for the 64th month after one month of contraction in April 2020. (A Manufacturing PMI above 42.3%, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index indicated growth in August following a six-month period of contraction; the figure of 51.4% is 4.3 percentage points higher than the 47.1% recorded in July. The August reading of the Production Index (47.8%) is 3.6 percentage points lower than July’s figure of 51.4%. The Prices Index remained in expansion (or ‘increasing’) territory, registering 63.7%, down 1.1 percentage points compared to the reading of 64.8% reported in July. The Backlog of Orders Index registered 44.7%, down 2.1 percentage points compared to the 46.8% recorded in July. The Employment Index registered 43.8%, up 0.4 percentage point from July’s figure of 43.4%,” Spence said. “The Supplier Deliveries Index indicated slower delivery performance after one month in ‘faster’ territory, which was preceded by seven consecutive months in expansion (or ‘slower’) territory. The reading of 51.3% is up 2 percentage points from the 49.3% recorded in July. (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 49.4%, up 0.5 percentage point compared to July’s reading of 48.9%.”
“The New Export Orders Index reading of 47.6% is 1.5 percentage points higher than the reading of 46.1% registered in July. The Imports Index registered 46%, 1.6 percentage points lower than July’s reading of 47.6%,” Spence said. “In August, U.S. manufacturing activity contracted at a slightly slower rate, with new orders growth the biggest factor in the 0.7-percentage point gain of the Manufacturing PMI. However, since production contracted at a rate nearly equal to the expansion in new orders, the Manufacturing PMI increase was nominal.”
“Two of the four demand indicators improved, with the New Orders and New Export Orders indexes showing gains, while the Customers’ Inventories and Backlog of Orders indexes contracted at slightly faster rates. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production,” Spence said. “Regarding output, the Production Index returned to contraction and the Employment Index edged up slightly, as panelists indicated that managing head counts is still the norm at their companies, as opposed to hiring.”
“Finally, inputs (defined as supplier deliveries, inventories, prices and imports), on net, declined further into contraction territory. The Inventories Index improved slightly but is still in contraction territory, the Supplier Deliveries Index indicated slower deliveries, and prices continued to increase, but at a slower rate. The Imports Index moved further into contraction,” Spence said. “Looking at the manufacturing economy, 69% of the sector’s gross domestic product (GDP) contracted in August, down from 79% in July. Four% of GDP is strongly contracting (registering a composite PMI of 45% or lower), down from 31% 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, two (Food, Beverage & Tobacco Products; and Petroleum & Coal Products) expanded in August, compared to none in July.”
The seven manufacturing industries reporting growth in August — listed in order — are:
- Textile mills
- Apparel, leather and allied products
- Nonmetallic mineral products
- Food, beverage and tobacco products
- Petroleum and coal products
- Miscellaneous manufacturing
- Primary metals
The 10 industries reporting contraction in August — in the following order — are:
- Paper products
- Wood products
- Plastics and rubber products
- Transportation equipment
- Furniture and related products
- Machinery
- Electrical equipment, appliances and components
- Computer and electronic products
- Chemical products
- Fabricated metal products
