ISM: New Manufacturing Orders and Production Up Strongly in August

By September 3, 2013Economy

The Institute for Supply Management’s (ISM) purchasing managers’ index (PMI) continued to reflect a manufacturing sector that was expanding, improving from weaknesses in the spring months. The PMI rose from 55.4 in July to 55.7 in August. This was the third consecutive month where the PMI was above the threshold of 50 which signifies growth. More importantly, it builds on the surprisingly strong data from July, which helped to give a psychological boost to the sector and was a sign that activity had indeed begun to accelerate.

Most notably, new orders and production were up strongly in August. To illustrate how the sales picture has turned around, the index for new orders has risen from 48.8 in May to 51.9 in June to 58.3 in July to 63.2 in this latest report. Given the frustratingly slow pace of sales, both domestically and globally, so far in 2013, this is definitely good news. Likewise, the production index eased from 65.0 in July to 62.4 in August, but this still indicates a healthy pace, with this index growing up from 48.6 in May.

On the hiring front, the index for employment declined from 54.4 in July to 53.3 in August. This supports the view that hiring growth will remain very modest at best in the coming months, continuing its recent trend. The positive news is that employment appears to have stabilized, with the index making progress from its 48.7 reading in June.

Other data points were somewhat mixed. Inventories remain in contraction territory (47.5), but the depletion of stockpiles should bode well for future production. This is especially true given the pickup in new orders. Meanwhile, the prices paid for raw materials accelerated slightly, up from 49.0 to 54.0 for the month. Still, while the pace of input prices has increased, inflationary pressures are far from worrisome, at least not yet. For example, the prices paid index stood at 61.5 in February, and have generally been lower since then.

Interestingly, the sample comments tend to tone down the positivity of the overall data, and if anything, they help to show that manufacturers remain tentative moving forward. A machinery business leader noted, “Still not seeing the year we had expected. Cautious about the balance of 2013.” Others noted tight government budgets, currency challenges, and other uncertainties. At the same time, there were those respondents who expressed a more upbeat tone, such as the fabricated metal products manufacturer who said that their U.S. and foreign sales were higher.

Overall, the ISM report reflects a manufacturing sector that has made progress since the spring. Increased sales and production are very welcome, particularly for manufacturers who were frustrated with disappointing numbers in the first half of the year. Yet, manufacturers are also realists, with most their optimism more cautious than not. With that in mind, it will be important for policymakers to adopt pro-growth measures that will allow the sector to build on these gains, and to not put the brakes on this momentum.

Chad Moutray is the chief economist, National Association of Manufacturers.


Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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