ISM says manufacturing growth slows, but orders, production, employment, inventories up

Tempe, AZ—Despite increasing at a slower rate, economic activity in the manufacturing sector grew for the 15th consecutive month in August, while the overall economy grew for the 34th consecutive month, according to U.S. supply executives in the latest Manufacturing ISM Report On Business by the Institute for Supply Management (ISM).


Tempe, AZ— Despite increasing at a slower rate, economic activity in the manufacturing sector grew for the 15th consecutive month in August, while the overall economy grew for the 34th consecutive month, according to U.S. supply executives in the latest Manufacturing ISM Report On Business by the Institute for Supply Management (ISM).

ISM's PMI registered 59% in August, a decrease of 3 percentage points from PMI’s 62% in July. ISM's New Orders Index declined 3.5 percentage points, from 64.7% in July to 61.2% in August. Similarly, ISM's Production Index decreased 6.6 percentage points, from 66.1% in July to 59.5% in August. ISM’s Employment Index was at 55.7% for August, a decrease of 1.6 percentage points compared to its 57.3% reported in July.

ISM explains that a PMI rate above 50% indicates that the manufacturing economy is generally expanding, while a reading below 50% indicates that the economy is generally contracting. Also, a PMI over 42.8% indicates a general expansion of the overall economy.

'The rate of growth in the manufacturing sector decelerated during August, but overall the sector is still quite positive, as both new orders and production remain at high levels. The Purchasing Managers’ Index (PMI) of 59% for August ended a nine-month period in which the PMI was at 60%,' says Norbert Ore, chair of ISM’s Manufacturing Business Survey Committee and group director for strategic sourcing and procurement at Georgia-Pacific Corp.

Meanwhile, ISM's Supplier Deliveries Index registered 63.2%, which was 1 percentage point lower than July's 64.2% rate. ISM's Inventories Index registered 51.7% in August, up from 49.9% in July. ISM's Customers' Inventories Index for August was 45.5%, an increase of 8 percentage points compared to July’s 37.5% reading. ISM's Prices Index in August was 81.5%, or 4.5 percentage points higher than the 77% reported in July.

In addition, ISM's Backlog of Orders Index decreased 3 percentage points, registering 55% in August compared to 58% in July. ISM's New Export Orders Index registered 54.2%, a decrease of 2 percentage points from July's 56.2%. ISM's Imports Index decreased 0.7 of a percentage point to 59.2% in August, down from 59.9% in July.

Also, ISM reported its Prices Index has regained momentum because prices manufacturers pay were driven by customer demand and energy costs. ISM's Customers' Inventories Index indicates that customer inventories are too low, though the rate of decline slowed in August, and the Backlog of Orders Index showed that order backlogs increased during the month. ISM’s New Export Orders and Imports Indexes continued growing in August.

Supply executives responding to ISM’s survey in August focused on energy costs, price inflation in basic materials, particularly steel, and slowing sales growth. The growth in inventories seems to be part of a 'catch up' strategy to meet higher demand on the sales side, which seems especially true for the continued strength in imports. Many still rate their business as 'strong,' while others believe they’re starting to see new orders taper off.

'August was another good month for the manufacturing sector. While the near-term outlook remains positive, both the Inventories and Customers' Inventories indexes show signs of inventory building. Such a build-up may be justified, if it is to meet additional sales demand, and if new orders and production remain strong,' adds Ore.

Control Engineering Daily News Desk
Jim Montague, news editor

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