ISM Report: PMI hovers below break-even again in August

Institute for Supply Management index remains just under 50 mark for third straight month.

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Manufacturing sector activity in August remained barely below the break-even line for the third consecutive month, according to the Institute of Supply Management’s monthly PMI Report.

The PMI registered 49.6%, a decrease of 0.2 percentage point from July's reading of 49.8%, indicating contraction in the manufacturing sector for the third consecutive month. This is also the lowest reading for the PMI since July 2009. The New Orders Index registered 47.1%, a decrease of 0.9 percentage point from July, indicating contraction in new orders for the third consecutive month.

The Production Index registered 47.2%, a decrease of 4.1 percentage points and indicating contraction in production for the first time since May 2009. The Employment Index remained in growth territory at 51.6%, but registered its lowest reading since November 2009 when the Employment Index registered 51%. The Prices Index increased 14.5 percentage points from its July reading to 54%. Comments from the panel generally reflect a slowdown in orders and demand, with continuing concern over the uncertain state of global economies.

"Internal indicators and feedback from sales channels are indicating a slowdown in manufacturing contracted in August as the PMI registered 49.6%, a decrease of 0.2 percentage point when compared to July's reading of 49.8%. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

A PMI in excess of 42.6%, over a period of time, generally indicates an expansion of the overall economy. Tthe August PMI indicates growth for the 39th consecutive month in the overall economy, but indicates contraction in the manufacturing sector for the third time since July 2009, when the PMI registered 49.2%.

The past relationship between the PMI and the overall economy indicates that the average PMI for January through August (52.2%) corresponds to a 3.2% increase in real gross domestic product. In addition, if the PMI for August (49.6%) is annualized, it corresponds to a 2.4% increase in real GDP annually.