ISM: Numbers Are Up On Strong Demand

Economic activity in the manufacturing sector expanded in August for the 15th consecutive month, and the overall economy grew for the 63rd consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

Economic activity in the manufacturing sector expanded in August for the 15th consecutive month, and the overall economy grew for the 63rd consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

Manufacturing expanded in August as the PMI registered 59 percent, an increase of 1.9 percentage points when compared to July’s reading of 57.1 percent. August’s PMI reading of 59 percent is the highest reading since March 2011 when the PMI registered 59.1 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

“The August PMI is led by the highest recorded New Orders Index since April 2004 when it registered 67.1 percent,” says Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Business Survey Committee. “At the same time, comments from the panel reflect a positive outlook mixed with caution over global geopolitical unrest.”

A PMI in excess of 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the August PMI indicates growth for the 63rd consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the 15th consecutive month.

Orders, Production and Inventory

ISM’s New Orders Index registered 66.7 percent in August, an increase of 3.3 percentage points when compared to the 63.4 percent reported in July, indicating growth in new orders for the 15th consecutive month. This is the highest reading since April 2004 when the New Orders Index registered 67.1 percent. A New Orders Index above 52.1 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

ISM’s Production Index registered 64.5 percent in August, which is an increase of 3.3 percentage points when compared to the 61.2 percent reported in July, indicating growth in production for the sixth consecutive month, and is the highest reading since May 2010 when the Production Index registered 64.6 percent. An index above 51.1 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

“Fourteen of our 18 industries are showing strong growth in New Orders,” adds Holcomb. “Only two industries are showing decrease and those are wood products and textile mills. I think wood products being down might be a temporary inventory situation, while textile mills seems to be on a little bit of a downturn.

“Other than that, the overall PMI is very broad-based and reflective of strong consumer confidence that has been reported by others. In terms of production, it’s just trying to keep up with those new orders. The backlog of orders grew 3 percentage points to 52.2, so production can’t even keep up with that.”

ISM’s Backlog of Orders Index registered 52.5 percent in August, which is 3 percentage points higher than the 49.5 percent reported in July, indicating growth in order backlogs following two months of contraction. Of the 87 percent of respondents who reported their backlog of orders, 25 percent reported greater backlogs, 20 percent reported smaller backlogs, and 55 percent reported no change from July.

The Inventories Index registered 52 percent in August, which is 3.5 percentage points higher than the 48.5 percent registered in July, and indicates raw materials inventories are growing following one month of contraction. An Inventories Index greater than 42.8 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis’ (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

“The Inventories Index says that manufacturers anticipate a continuation of strong new orders,” explains Holcomb. “Our procurement people can see new orders over a 4 to 6 month horizon and plan their inventories accordingly. This is good news for this index and manufacturing going forward.”

Exports, Imports and Prices

ISM’s New Export Orders Index registered 55 percent in August, which is 2 percentage points higher than the 53 percent reported in July. August’s reading reflects growth in the level of exports for the 21st consecutive month.

ISM’s Imports Index registered 56 percent in August, which is 4 percentage points higher than the 52 percent reported in July. This month’s reading represents 19 consecutive months of growth in imports.

“Imports and Exports numbers are very interesting right now, particularly in view of the global situation and some geopolitical hotspots,” says Holcomb. “If you look at the PMI in China, manufacturing has come off more than a full point to 51.7. In the Eurozone it’s down 50.7 from 51.8 with a lot of commentary from the journalists in Europe that the Ukrainian situation is creating a damper on things. With that said, when people around the world are looking for manufacturing, they’re looking more so at the United States than other areas. That’s reflected in the imports and exports being so strong right now.”

The ISM Prices Index registered 58 percent in August, which is a decrease of 1.5 percentage points compared to the July reading of 59.5 percent. In August, 24 percent of respondents reported paying higher prices, 8 percent reported paying lower prices, and 68 percent of supply executives reported paying the same prices as in July. A Prices Index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

“The Prices Index is good,” explains Holcomb. “Pricing is very much in check with very nominal price increases at this point.”

Employment

ISM’s Employment Index registered 58.1 percent in August, which is a slight decrease of 0.1 percentage point when compared to the 58.2 percent reported in July, and represents the 14th consecutive month of growth in employment. An Employment Index above 50.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

In his role as the chair of the Institute for Supply Management Manufacturing Business Survey Committee, Bradley J. Holcomb writes the monthly Manufacturing ISM Report on Business 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 of Supply Management, visit www.ism.ws.

 
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