The Institute for Supply Management (ISM) reported that manufacturing activity grew robustly in August, expanding at its fastest pace since April 2011. The ISM Manufacturing Purchasing Managers’ Index (PMI) increased from 56.3 in July to 58.8 in August. The sample comments tended to echo the strong data, with mostly positive feedback from respondents on healthy gains in sales and an optimistic business outlook. Along those lines, the indices for new orders (down from 60.4 to 60.3) and production (up from 60.6 to 61.0) exceeded 60 for the third straight month (and seven of the past nine months), illustrating strong growth in demand and output in the sector overall. In contrast, one year ago, the manufacturing sector contracted slightly with the headline PMI at 49.4, and since then, we have seen tremendous progress.
Other figures also reflected that strength. For instance, employment grew at its quickest rate since June 2011 (up from 55.2 to 59.9), helping to lift the headline index. In a similar way, supplier deliveries (up from 55.4 to 57.1) and inventories (up from 50.0 to 55.5) both accelerated in August, with the latter at its highest level in almost seven years. On the international front, exports pulled back a little in this report (down from 57.5 to 55.5), but international sales continued to expand modestly overall, rising for the 18th consecutive month. Given the drag from exports on the U.S. economy and on manufacturing sentiment over the past two years, the recent strength in export orders has been entirely welcome.
Meanwhile, prices for raw materials remained elevated (unchanged at 62.0), continuing to expand at their fastest pace since April. While we have seen decelerating pricing pressures in general since the spring, this more recent pickup reflects a rebound in some commodity costs.