ISM report shows solid manufacturing growth in August

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Manufacturing output, for the month of August, headed up for the third consecutive month, according to data released today by the Institute for Supply Management (ISM).

In its monthly Manufacturing Report on Business, ISM reported that the report’s key metric, the PMI, was 56 (a reading of 50 or higher indicates growth), which topped July’s reading by 1.8%. The PMI topped the 50 mark in June, at 52.6, and was followed by a 54.2 reading in July. And August’s PMI represents the highest PMI reading over the last 12 months and is 6.2% above the 12-month average of 49.2. ISM also noted that the overall economy grew for the fourth straight month in August, following a decline in April, which snapped a stretch of 131 consecutive months of economic expansion.

ISM reported that 15 of the 18 manufacturing sectors it tracks saw growth in August, including: Wood Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Textile Mills; Chemical Products; Computer & Electronic Products; Primary Metals; Fabricated Metal Products; Machinery; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Paper Products; and Transportation Equipment. The three industries reporting contraction in August are: Printing & Related Support Activities; Petroleum & Coal Products; and Furniture & Related Products.

Nearly all of the report’s key metrics saw growth in August.

New orders, which are commonly referred to as the engine that drives manufacturing, climbed 6.1% to 67.6, growing for the third straight month, with the six top manufacturing sectors each reporting growth. What’s more, the August reading is the highest since January 2004’s 70.6. Inventories slipped 2.6%, to 38.1, which ISM described as a level that is “too low” and has been down for 47 months straight.

Production, at 63.3, headed up 1.2%, from July to August, growing for the third consecutive month, with each of the top six manufacturing sectors showing production growth. August is the highest reading, for production, since January 2018’s 64.2.

Supplier deliveries, at 58.2, 8 (a reading above 50 indicates contraction), came in 2.4% above August, with the report explaining this shows how suppliers are continuing to struggle, citing things like plant interruptions, transportation challenges, and continuing difficulties in supplier labor markets as the key reasons.

Comments from ISM members included in the report were somewhat mixed, with COVID-19 and upticks in business again serving as the key themes.

“Business is very good. Production cannot keep up with demand. Some upstream supply chains are starting to have issues with raw material and/or transportation availability,” said a chemical products respondent.

And a computer and electronic products respondent said his company is watching COVID-19 situations in Mexico, Brazil, Philippines [and] Hong Kong, adding that there are high rates of COVID-19 surging and that currently, lines of supply are no longer impacted by COVID-19 related events.

In an interview, Tim Fiore, Chair of the ISM’s Manufacturing Business Survey Committee, explained that this report showed very solid demand increases, especially when looking at the new orders number as well as new exports (up 2.9% to 53.3) and imports (up 2.5% to 55.6).

“The report showed very good demand for all four sub-indexes,” he said. “Global trade is coming back, and the customer inventories number is at its lowest level in ten years (down 3.5% to 38.1), which is really good. That means that production has a lot of work to do to fill that bucket. And backlog of orders came up, too (up 2.8% to 54.6), so we are happy about that. Overall, there was very surprisingly strong demand for the month of August. And the top six industry sectors expanded at levels better than they had in some time.”

Looking ahead, Fiore said that the August PMI was somewhat higher than expected, despite the fact that inventories contracted pretty strongly.

“What we are looking at here is what I will call the first tier month, where everybody had started up in the June/July timeframe, and there was really no external influence that impacted anything,” he said. “We did not have cities or states shutting down, while the COVID-19 virus continued. With those things considered, this is a stable state for the manufacturing economy, and we got to a PMI of 56.0 even with some issues.”

And, in the future, he said there will be some indexes that will be viewed as headwinds that he said could be viewed as fundamentally damaged, including commercial aviation, the oil and gas industry, and areas around commercial real estate and office furniture, too. He also noted that there is a fair amount of concern around capital goods investments, which he said is essentially dormant at this point.

About the Author

Jeff Berman, Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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2020-09-01 09:57:00

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