ISM: Manufacturing Activity Unexpectedly Contracted in August for First Time Since February

The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) unexpectedly contracted in August for the first time since February. The composite index dropped from 52.6 in July to 49.4 in August. A couple of the sample responses cited a “flat” business environment for the month. Indeed, new orders (down from 56.9 to 49.1) and production (down from 55.4 to 49.6) both shifted from decent growth in July to decreased activity in August, with employment (down from 49.4 to 48.3) remaining in negative territory for the second straight month.

Overall, this is a disappointing result, as it temporary suspends the narrative that manufacturing was beginning to stabilize after weaknesses seen earlier in the year. Yet, more than anything, this report shows that the sector’s challenges continue to linger even as other data have been more promising. One positive take way was exports (unchanged at 52.5), which have expanded now for six straight months.

In contrast to the ISM data, the competing Markit U.S. Manufacturing PMI release remained expansionary, albeit with some easing for the month, down from 52.9 to 52.0. In that release, new orders (down from 54.2 to 52.7) slowed a bit, and output (unchanged at 53.8) continued to increase at a modest pace. Similar to earlier discussion, growth in exports (up from 52.6 to 53.2) accelerated to its fastest rate in nearly two years, making it one of the brighter spots. Given the softness of international demand of late, especially with a stronger U.S. dollar, the strength of exports in each of these surveys is notable.

Both of these reports also indicate declining inventories. In the ISM release, inventories (down from 49.5 to 49.0) were negative for the 14th straight month. The silver lining is that this could provide a stimulative effect for growth in the coming months, as manufacturers will need to increase production to meet additional demand, with stockpiles quite low.

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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