Economic activity in the manufacturing sector contracted in August for the fifth consecutive month and the 21st time in the last 22 months, according to the latest Manufacturing Report On Business by the Institute for Supply Management (ISM).

The report was issued by Timothy R. Fiore, chair of the Institute for Supply Management Manufacturing (ISM) business survey committee.

“The manufacturing PMI registered 47.2% in August, up 0.4 percentage points from the 46.8% recorded in July. The overall economy continued in expansion for the 52nd month after one month of contraction in April 2020. (A manufacturing PMI above 42.5%, over a period of time, generally indicates an expansion of the overall economy.) The new orders index remained in contraction territory, registering 44.6%, 2.8 percentage points lower than the 47.4% recorded in July,” Fiore said. “The August reading of the production index (44.8%) is 1.1 percentage points lower than July’s figure of 45.9%. The prices index registered 54%, up 1.1 percentage points compared to the reading of 52.9% in July. The backlog of orders index registered 43.6%, up 1.9 percentage points compared to 41.7 in July. The employment index registered 46%, up 2.6 percentage points from July’s figure of 43.4%.”

“The supplier deliveries index indicated slowing deliveries, registering 50.5%, 2.1 percentage points lower than the 52.6% recorded in July. (Supplier Deliveries is the only ISM Report On Business 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 50.3%, up 5.8 percentage points compared to July’s reading of 44.5%,” Fiore said. “The new export orders index reading of 48.6% is 0.4 percentage point lower than the 49% registered in July. The imports index remained in contraction territory in August, registering 49.6%, one percentage point higher than the 48.6% reported in July.”

“While still in contraction territory, U.S. manufacturing activity contracted slower compared to last month. Demand continues to be weak, output declined and inputs stayed accommodative. Demand slowing was reflected by the (1) new orders index dropping further into contraction, (2) new export orders index contracting slightly faster, (3) backlog of orders index remaining in strong contraction territory and (4) customers’ inventories index at the ‘just right’ level,” Fiore said. “Output (measured by the production and employment indexes) continued in moderate contraction with production sagging further, while employment contracted slower as compared to July. Panelists’ companies reduced production levels month over month as head-count reductions continued in August. Inputs — defined as supplier deliveries, inventories, prices and imports — generally continued to accommodate future demand growth, with inventory growth attributed to a supply demand timing mismatch.”

“Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and election uncertainty. Production execution was down compared to July, putting additional pressure on profitability. Suppliers continue to have capacity, with lead times improving and shortages not as severe. Sixty-five percent of manufacturing gross domestic product (GDP) contracted in August, down from 86% in July,” Fiore said. “The share of manufacturing sector GDP registering a composite PMI calculation at or below 45% (a good barometer of overall manufacturing weakness) was 33% in August, a 20-percentage point improvement compared to the 53% reported in July. Two of the six of the largest manufacturing industries — food, beverage and tobacco products; and computer and electronic products — expanded in August, compared to none in July.”

The five manufacturing industries reporting growth in August are:

• Primary metals
• Petroleum and coal products
• Furniture and related products
• Food, beverage and tobacco products
• Computer and electronic products

The 12 industries reporting contraction in August — in the following order — are:

• Textile mills
• Printing and related support activities
• Nonmetallic mineral products
• Plastics and rubber products
• Electrical equipment, appliances and components
• Fabricated metal products
• Transportation equipment
• Wood products
• Machinery
• Paper products
• Chemical products
• Miscellaneous manufacturing