Manufacturing Sector Sees Slower Growth In August

Despite growing at slowest pace in five months, new orders and production generate optimism for fourth quarter 2007.

TEMPE, Ariz. — For August, manufacturing activity expanded inline with analyst forecasts of 53. At 52.9, the PMI was down from 53.8 in July, according to the Institute for Supply Management’s (ISM) Report On Business.
“Viewed from the manufacturing sector, the overall economy continues to grow at a significant rate,” said Norbert J. Ore, chair of the Institute for Supply Management Manufacturing Business Survey Committee. “In comparing August to July, the rate of growth in manufacturing was slightly less but continues the expansion, although at the slowest pace in the past five months. Both the New Orders Index and the Production Index are encouraging for the continuing growth as we head toward the fourth quarter of 2007.”
The top 10 growth industries were: Nonmetallic Mineral Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Wood products; Chemical Products; Apparel, Leather & Allied Products; Fabricated Metal Products; Textile Mills; Electrical Equipment, Appliances & Components; and Furniture & Related Products.
Commodities including aluminum, copper, copper products, eggs, flour, freight, lead, packaging, polyethylene resins, polypropylene resins, soybean oil and steel were up in price. Gasoline, natural gas and nickel were down in price, and sulfuric acid was the only commodity listed in short supply.
New orders slipped from 57.5 in July to 55.3 in August as production rose from 55.6 to 56.1.
Employment increased from 50.2 in July to 51.3 this month. Furniture & Related Products, Chemical Products, Machinery, and Food, Beverage & Tobacco Products saw the strongest growth in employment this month.
Supplier deliveries were unchanged in August. Inventories dropped 3.1 points to 45.4 as inventory liquidation enters its 13th consecutive month.
At 63, the Prices Index shows manufacturers are paying higher prices compared to July.
Backlog of Orders decreased 1.5 points to 50.5. New export orders increased half a point to 57 as imports dropped two points to 52.5.
“The ISM report for August shows that the manufacturing sector continues to grow despite the turmoil in financial markets,” said Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI. “Industrial activity is neither brisk nor weak; it is growing at a moderate rate. A key driver for the positive industrial outlook is foreign trade. The decline in the dollar, and more importantly a pickup in economic growth in Europe, is finally starting to have a strong beneficial impact on export orders. 
“Modest consumer spending growth in the United States, on the other hand, has a positive impact in that the growth rate of imported goods is restrained,” he added. “With exports growing significantly faster than imports, the industrial sector benefits from more domestic and international orders. An improving foreign trade situation and an ending of an inventory rundown yield moderately paced industrial growth.”
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