ISM: Manufacturing Report On Business Index Fell to Just Above Contraction in August

U.S. Manufacturing Sector Grows at Weakest Pace in Two Years

The Institute for Supply Management’s Manufacturing Report on Business index of factory activity fell to 51.1 in August from 52.7 in July.

While economic activity in the manufacturing sector expanded in August for the 32nd consecutive month, reading came in below Wall Street’s expected decline to 52.6. Readings above 50 point to expansion, while those below 50 indicate contraction.

“The August PMI® registered 51.1 percent, a decrease of 1.6 percentage points from the July reading of 52.7 percent. The New Orders Index registered 51.7 percent, a decrease of 4.8 percentage points from the reading of 56.5 percent in July,” said Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee. “The Production Index registered 53.6 percent, 2.4 percentage points below the July reading of 56 percent. The Employment Index registered 51.2 percent, 1.5 percentage points below the July reading of 52.7 percent.”

Meanwhile, Wall Street reacted to the weak global manufacturing data by selling off crude and equity positions early in the morning straight through the closing bell. China’s official Purchasing Managers’ Index (PMI) dropped to 49.7 in August from 50.0 in July, reinforcing fears about slowing global economic and manufacturing sector growth.

“Almost all of the world manufacturing powerhouses are nestled between 47 and 53 with the eurozone the best example of strength and China the poster child for manufacturing struggling,” IHS U.S. Economist Michael Montogmery wrote in a research note Tuesday. “U.S. manufacturing is somewhere in the upper third or that range, but no longer the locomotive as it digests bad foreign trade prospects and holding too much inventory in the system.”

Still, of the 18 manufacturing industries, 10 are reporting growth in August in the following order: Textile Mills; Furniture & Related Products; Paper Products; Nonmetallic Mineral Products; Chemical Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Fabricated Metal Products; Plastics & Rubber Products; and Machinery. The six industries reporting contraction in August — listed in order — are: Apparel, Leather & Allied Products; Primary Metals; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Computer & Electronic Products; and Transportation Equipment.

“Inventories of raw materials registered 48.5 percent, a decrease of 1 percentage point from the July reading of 49.5 percent. The Prices Index registered 39 percent, down 5 percentage points from the July reading of 44 percent, indicating lower raw materials prices for the 10th consecutive month,” Holcomb added. “The New Export Orders Index registered 46.5 percent, down 1.5 percentage points from the July reading of 48 percent. Comments from the panel reflect a mix of modest to strong growth depending upon the specific industry, the positive impact of lower raw materials prices, but also a continuing concern over export growth.”

Nevertheless, the PMI showed U.S. manufacturing sector growth slowed in August to its weakest pace in more than two years.

Manufacturing ISM^® Report On Business^® data is seasonally adjusted for New Orders, Production, Employment and Supplier Deliveries indexes.

*Number of months moving in current direction.