| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Index | 46.8 | 45.5 to 47.5 | 47.6 | 46.4 |
Highlights
US manufacturing activity was in contraction territory for the 10th straight month in August as new orders remained sluggish but the pace of overall slowdown eased from July, raising hopes that the sector is headed for more stable operations, data from the Institute for Supply Management released Friday showed.
The sector index compiled by the ISM, which shows general direction, rose 1.2 percentage point to a six-month high of 47.6 in August, led by upticks in production and employment. It followed a 0.4-point rise to 46.4 in July and a 0.9-point fall to 46.0 in June. The latest figure is above the median economist forecast of 46.5 but as it was below 50, indicates contraction in the sector.
The index has been on a gradual downtrend since June 2022 but it seems to have hit a bottom in June at 46.0, which was the lowest since May 2020, when the index at 43.5 was recovering from a recent low of 41.8 the previous month during the first wave of the pandemic. The all-time low is 29.4 hit in May 1980.
Regarding the overall economy, the latest figure indicates a ninth month of contraction after a 30-month period of expansion. The ISM's manufacturing PMI reading above 48.7, over time, generally indicates an expansion of the overall economy.
"The August composite index reading reflects companies managing outputs appropriately as order softness continues, but the month-over-month increase is a sign of improvement," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement."Demand remains soft, but production execution is consistent with new, reduced output levels based on panelists' companies order books."
"Panelists' companies stabilized production compared to July and continued to manage head counts, primarily through attrition," he added.
Fiore told reporters that the US manufacturing sector relies largely on domestic demand, and thus that he is not so concerned about slowing global growth, China's economic ills or spillover effects of geopolitical developments.
"It feels like we are in a trough," he said."New orders, production, employment, prices, supplies are all moving towards a better balance."
The August survey showed that 62 percent of manufacturing gross domestic product GDP contracted, down from 92 percent in July, a positive trend for the economy, Fiore said. In addition, the share of manufacturing GDP registering a composite PMI calculation at or below 45 -- a good barometer of overall manufacturing weakness -- was 15 percent in August, compared to 25 percent in July and 44 percent in June, which is a clear positive sign, he said.
"It feels like we are moving toward stability," Fiore concluded.
A fabricated metal producer told the ISM survey,"Fourth quarter orders falling short of projection and indicating a slowdown in customer demand, though the first quarter forecast remains solid."
Many firms mentioned slowing activity."Further reductions in customer orders due to the economic situation and also their working down of own inventories," a computer and electronic products maker said. A company from the electrical equipment, appliances and components industry noted,"There is additional softening in the market. Customers are hesitant to provide extended forecasts with today's economic uncertainty."
A few surveyed firms made references to higher interest rates and elevated costs for daily necessities.
A wood products maker said the Federal Reserve's"actions to increase borrowing costs has dampened demand for residential investment" but also added that"this slowdown plateaued somewhat, with demand stabilizing."
"Customers are also being pinched with higher interest rates." a company in the food, beverage and tobacco products category said."Additionally, consumers are feeling their purchasing power eroded by stubbornly high inflation, so they are purchasing less."
Among the five subindexes that directly factor into the manufacturing PMI, the new orders Index contracted for the 12th consecutive month, saying below the neutral line of 50. It dipped 0.5 percentage point to 46.8 in August after rising 1.7 points to 47.3 in July and 3.0 points to 45.6 in June and plunging 3.1 points to a four-month low of 42.6 in May.
The production index reading of 50.0 in August is a 1.7-percentage point increase from 48.3 in July, when it rose 1.6 points after a 4.4-point slump to a three-year low of 46.7 in June.
The employment index was in contraction for the third straight month, but it rose 4.1 points to 48.5 in August after slipping to a three-year low of 44.4 in July. Previously, the index rose 1.2 points to 51.4 in May after popping into expansion territory for the first time in four months in April at 50.2."In August, attrition was the primary source of head-count reductions; this method is slower compared to hiring freezes or layoffs, which suggests that panelists' companies are not driven by reducing labor costs," Fiore said.
The delivery performance of suppliers to manufacturing organizations was faster for the 11th straight month amid generally improving supply chains. The supplier deliveries index at 48.6 is a 2.5-point rise from 46.1 in July and the highest since
54.2 seen in September 2022. The May figure of 43.5 is the lowest since 43.2 in March 2009.
The manufacturing inventories index fell 2.1 points to 44.0 in August after posting its first rise in seven months in July with a 2.1-point gain. The index at 44.0 in June is the lowest since 43.9 in January 2014.
Among other subindexes, the customers' inventories index was unchanged at 48.7 in August after rising 2.5 points in July. It remains"too low" after plunging 5.2 points to a"too low" level of 46.2 in June (an eight-month low) from a"too High" level of 51.4 in May. The May figure is the highest in more than six years since September 2016, when it registered 52.5. The all-time high is 56.0 hit in January 2001.
The prices index indicated decreases for the fourth consecutive month. It rose 5.8 points to 48.4 in August after rising 0.8 point to 42.6 in July but stayed below the key 50 level after falling 2.4 points to a six-month low of 41.8 in June and slumping 9.0 points to 44.2 in May.
The backlog orders index rose 1.3 points to 44.1 in August after rising 4.1 points to 42.8 in July. It followed a 1.2-point gain to 38.7 in June and a 5.6-point drop to 37.5 in May, which is the lowest since the Great Recession (33.6 in February 2009).
The new export orders index was in contraction for the third month in a row. It edged up 0.3 point to 46.5 in August after falling 1.1 points to 46.2 in July, slipping 2.7 points to 47.3 in June and edging up 0.2 point to the neutral level of 50.0 in May, which was preceded by nine straight months in contraction territory and 25 months of expansion from July 2020 to July 2022.
The sector index compiled by the ISM, which shows general direction, rose 1.2 percentage point to a six-month high of 47.6 in August, led by upticks in production and employment. It followed a 0.4-point rise to 46.4 in July and a 0.9-point fall to 46.0 in June. The latest figure is above the median economist forecast of 46.5 but as it was below 50, indicates contraction in the sector.
The index has been on a gradual downtrend since June 2022 but it seems to have hit a bottom in June at 46.0, which was the lowest since May 2020, when the index at 43.5 was recovering from a recent low of 41.8 the previous month during the first wave of the pandemic. The all-time low is 29.4 hit in May 1980.
Regarding the overall economy, the latest figure indicates a ninth month of contraction after a 30-month period of expansion. The ISM's manufacturing PMI reading above 48.7, over time, generally indicates an expansion of the overall economy.
"The August composite index reading reflects companies managing outputs appropriately as order softness continues, but the month-over-month increase is a sign of improvement," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement."Demand remains soft, but production execution is consistent with new, reduced output levels based on panelists' companies order books."
"Panelists' companies stabilized production compared to July and continued to manage head counts, primarily through attrition," he added.
Fiore told reporters that the US manufacturing sector relies largely on domestic demand, and thus that he is not so concerned about slowing global growth, China's economic ills or spillover effects of geopolitical developments.
"It feels like we are in a trough," he said."New orders, production, employment, prices, supplies are all moving towards a better balance."
The August survey showed that 62 percent of manufacturing gross domestic product GDP contracted, down from 92 percent in July, a positive trend for the economy, Fiore said. In addition, the share of manufacturing GDP registering a composite PMI calculation at or below 45 -- a good barometer of overall manufacturing weakness -- was 15 percent in August, compared to 25 percent in July and 44 percent in June, which is a clear positive sign, he said.
"It feels like we are moving toward stability," Fiore concluded.
A fabricated metal producer told the ISM survey,"Fourth quarter orders falling short of projection and indicating a slowdown in customer demand, though the first quarter forecast remains solid."
Many firms mentioned slowing activity."Further reductions in customer orders due to the economic situation and also their working down of own inventories," a computer and electronic products maker said. A company from the electrical equipment, appliances and components industry noted,"There is additional softening in the market. Customers are hesitant to provide extended forecasts with today's economic uncertainty."
A few surveyed firms made references to higher interest rates and elevated costs for daily necessities.
A wood products maker said the Federal Reserve's"actions to increase borrowing costs has dampened demand for residential investment" but also added that"this slowdown plateaued somewhat, with demand stabilizing."
"Customers are also being pinched with higher interest rates." a company in the food, beverage and tobacco products category said."Additionally, consumers are feeling their purchasing power eroded by stubbornly high inflation, so they are purchasing less."
Among the five subindexes that directly factor into the manufacturing PMI, the new orders Index contracted for the 12th consecutive month, saying below the neutral line of 50. It dipped 0.5 percentage point to 46.8 in August after rising 1.7 points to 47.3 in July and 3.0 points to 45.6 in June and plunging 3.1 points to a four-month low of 42.6 in May.
The production index reading of 50.0 in August is a 1.7-percentage point increase from 48.3 in July, when it rose 1.6 points after a 4.4-point slump to a three-year low of 46.7 in June.
The employment index was in contraction for the third straight month, but it rose 4.1 points to 48.5 in August after slipping to a three-year low of 44.4 in July. Previously, the index rose 1.2 points to 51.4 in May after popping into expansion territory for the first time in four months in April at 50.2."In August, attrition was the primary source of head-count reductions; this method is slower compared to hiring freezes or layoffs, which suggests that panelists' companies are not driven by reducing labor costs," Fiore said.
The delivery performance of suppliers to manufacturing organizations was faster for the 11th straight month amid generally improving supply chains. The supplier deliveries index at 48.6 is a 2.5-point rise from 46.1 in July and the highest since
54.2 seen in September 2022. The May figure of 43.5 is the lowest since 43.2 in March 2009.
The manufacturing inventories index fell 2.1 points to 44.0 in August after posting its first rise in seven months in July with a 2.1-point gain. The index at 44.0 in June is the lowest since 43.9 in January 2014.
Among other subindexes, the customers' inventories index was unchanged at 48.7 in August after rising 2.5 points in July. It remains"too low" after plunging 5.2 points to a"too low" level of 46.2 in June (an eight-month low) from a"too High" level of 51.4 in May. The May figure is the highest in more than six years since September 2016, when it registered 52.5. The all-time high is 56.0 hit in January 2001.
The prices index indicated decreases for the fourth consecutive month. It rose 5.8 points to 48.4 in August after rising 0.8 point to 42.6 in July but stayed below the key 50 level after falling 2.4 points to a six-month low of 41.8 in June and slumping 9.0 points to 44.2 in May.
The backlog orders index rose 1.3 points to 44.1 in August after rising 4.1 points to 42.8 in July. It followed a 1.2-point gain to 38.7 in June and a 5.6-point drop to 37.5 in May, which is the lowest since the Great Recession (33.6 in February 2009).
The new export orders index was in contraction for the third month in a row. It edged up 0.3 point to 46.5 in August after falling 1.1 points to 46.2 in July, slipping 2.7 points to 47.3 in June and edging up 0.2 point to the neutral level of 50.0 in May, which was preceded by nine straight months in contraction territory and 25 months of expansion from July 2020 to July 2022.
Market Consensus Before Announcement
The ISM manufacturing index has been in contraction the last nine months. August's consensus is 46.8 versus July's 46.4.
Definition
The manufacturing composite index from the Institute for Supply Management is a diffusion index calculated from five of the eleven sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms nationwide. The survey queries purchasing managers about the general direction (tracked in volumes) of production, new orders, order backlogs, their own inventories, customer inventories, employment, supplier deliveries, exports, and imports. Data on changes in input prices (prices paid) are also tracked. The five components of the composite index are new orders, production, employment, supplier deliveries, and inventories (their own, not customer inventories). The five components are equally weighted. The questions are qualitative rather than quantitative; that is, they ask about the general direction rather than the specific level of activity. Each question is adjusted into a diffusion index which is calculated by adding the percentage of positive responses to one-half of the unchanged responses.
Description
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM manufacturing index, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
The ISM manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provide insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data. As a result, the bond market is highly sensitive to this report.
Importance
The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is enhanced by the fact that it is available very early in the month and is not subject to revision.
Interpretation
The bond market will rally (fall) when the ISM manufacturing index is weaker (stronger) than expected. Equity markets prefer lower interest rates and could rally with the bond market. However, a healthy manufacturing sector, indicated by rising ISM index levels, bodes well for corporate earnings and is bullish for the stock market.
The level of the ISM manufacturing index indicates whether manufacturing and the overall economy are growing or declining. Historically, readings of 50 percent or above are associated with an expanding manufacturing sector and healthy GDP growth overall. Readings below 50 indicate a contracting manufacturing sector but overall GDP growth is still positive until the ISM index falls below 42.5 (based on statistics through January 2011). Readings in between these two levels suggest that manufacturing is declining while GDP is still growing but only very slowly.
In addition to the ISM manufacturing composite index, the various sub-components contain useful information about manufacturing activity. The production component is related to industrial production, new orders to durable goods orders, employment to factory payrolls, prices to producer prices, export orders to merchandise trade exports and import orders to merchandise imports.
Vendor (supplier) deliveries are an important component of report. The more slowly orders are filled and delivered, the stronger the economic growth and the greater the potential for inflation. When orders are filled quickly, it means that producers don't have as many to fill.
The ISM manufacturing composite index and its sub-components can be subject to some monthly volatility, making the three-month average of the monthly levels more indicative of the trend.
The ISM manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provide insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data. As a result, the bond market is highly sensitive to this report.
Importance
The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is enhanced by the fact that it is available very early in the month and is not subject to revision.
Interpretation
The bond market will rally (fall) when the ISM manufacturing index is weaker (stronger) than expected. Equity markets prefer lower interest rates and could rally with the bond market. However, a healthy manufacturing sector, indicated by rising ISM index levels, bodes well for corporate earnings and is bullish for the stock market.
The level of the ISM manufacturing index indicates whether manufacturing and the overall economy are growing or declining. Historically, readings of 50 percent or above are associated with an expanding manufacturing sector and healthy GDP growth overall. Readings below 50 indicate a contracting manufacturing sector but overall GDP growth is still positive until the ISM index falls below 42.5 (based on statistics through January 2011). Readings in between these two levels suggest that manufacturing is declining while GDP is still growing but only very slowly.
In addition to the ISM manufacturing composite index, the various sub-components contain useful information about manufacturing activity. The production component is related to industrial production, new orders to durable goods orders, employment to factory payrolls, prices to producer prices, export orders to merchandise trade exports and import orders to merchandise imports.
Vendor (supplier) deliveries are an important component of report. The more slowly orders are filled and delivered, the stronger the economic growth and the greater the potential for inflation. When orders are filled quickly, it means that producers don't have as many to fill.
The ISM manufacturing composite index and its sub-components can be subject to some monthly volatility, making the three-month average of the monthly levels more indicative of the trend.
