Economic activity in the manufacturing sector expanded in August, and the overall economy grew for the 112th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.
Manufacturing expanded in August as the PMI registered 61.3 percent, an increase of 3.2 percentage points from the July reading of 58.1 percent. This indicates strong growth in manufacturing for the 24th consecutive month, led by continued expansion in all subindexes that make up the PMI. The PMI reached its highest level since May 2004, when it registered 61.4 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee states, “The past relationship between the PMI and the overall economy indicates that the PMI for August (61.3 percent) corresponds to a 5.6 percent increase in real gross domestic product (GDP) on an annualized basis.”
A PMI above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the August PMI indicates growth for the 112th consecutive month in the overall economy and the 24th straight month of growth in the manufacturing sector.
Orders, Production and Inventory
The Inventories Index registered 55.4 percent in August, which is an increase of 2.1 percentage points when compared to the 53.3 percent reported for July, indicating growth in raw materials inventories for the eighth consecutive month. An Inventories Index greater than 43 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).
“Inventories continued to expand for the eighth consecutive month. Although supplier deliveries were slower compared to the previous month, inventory gains were made, which will support increased production flexibility as manufacturing closes the quarter in September,” explains Fiore.
ISM’s New Orders Index registered 65.1 percent in August, which is an increase of 4.9 percentage points when compared to the 60.2 percent reported for July, indicating growth in new orders for the 32nd consecutive month.
“Customer demand reversed a three-month softening of expansion. New orders continued to expand at high levels, with the index at or above 60 percent for the 16th straight month. The index achieved its highest level since January 2018, when it registered 65.4 percent,” adds Fiore.
ISM’s Production Index registered 63.3 percent in August, which is an increase of 4.8 percentage points when compared to the 58.5 percent reported for July, indicating growth in production for the 24th consecutive month.
“Production rebounded in August, with the index reaching the highest level since January 2018 (64.5 percent). However, labor constraints throughout the supply chain and transportation difficulties continue to limit full production potential,” says Fiore.
An index above 51.5 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.
ISM’s Backlog of Orders Index registered 57.5 percent in August, which is 2.8 percentage points higher than the 54.7 percent reported in July, indicating growth in order backlogs for the 19th consecutive month. Backlogs continued to grow at higher levels. Continued low levels of customer inventory and strong new order expansion support production requirements in the near term.
Exports, Imports and Prices
ISM’s New Export Orders Index registered 55.2 percent in August, a decrease of 0.1 percentage point when compared to the 55.3 percent reported for July, indicating growth in new export orders for the 30th consecutive month.
“Four of the six big industry sectors continued to expand export activity during the period,” says Fiore.
The six industries reporting growth in new export orders in August — listed in order — are: Petroleum & Coal Products; Computer & Electronic Products; Chemical Products; Fabricated Metal Products; Miscellaneous Manufacturing; and Food, Beverage & Tobacco Products. The four industries reporting a decrease in new export orders in August are: Wood Products; Primary Metals; Transportation Equipment; and Machinery. Eight industries reported no change in new export orders in August.
ISM’s Imports Index registered 53.9 percent in August, a decrease of 0.8 percentage point when compared to the 54.7 percent reported for July, indicating that imports grew in August for the 19th consecutive month.
The ISM Prices Index registered 72.1 percent in August, a decrease of 1.1 percentage points from the July reading of 73.2 percent, indicating an increase in raw materials prices for the 30th consecutive month. In August, 51.1 percent of respondents reported paying higher prices, 6.8 percent reported paying lower prices, and 42 percent of supply executives reported paying the same prices as in July.
“The price increases across all industry sectors continue. The Business Survey Committee noted price increases softening slightly in metals (all steels, steel components and aluminum). However, increases continue in various chemicals, corrugate and packaging products, freight, labor, electrical and electronic components, wheat and wheat products, products manufactured primarily from steel (hydraulic components), and paper products. Shortages continue in electrical and electronic components, labor, and freight,” explains Fiore.
A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.
ISM’s Employment Index registered 58.5 percent in August, an increase of 2 percentage points when compared to the July reading of 56.5 percent. This indicates growth in employment in August for the 23rd consecutive month.
“Employment continued to expand, supporting production growth during the month. Respondents continued to note labor-market issues as a constraint to their production and their suppliers’ production capability,” adds Fiore.
An Employment Index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
The monthly Manufacturing ISM Report on Business is based on the survey results of approximately 350 professionals across 18 different industry sectors. The report is released on the first business day of each month and features the PMI Index as its key measure. For more information on the Institute for Supply Management, visit www.ism.ws.