August manufacturing output was flat compared to July and remained on the right side of growth, according to the most recent edition of the Manufacturing Report on Business issued today by the Institute for Supply Management (ISM).
The report’s key metric, the PMI, was 52.8 (a reading of 50 or higher indicates growth), matching the July PMI, growing, at the same rate, for the 27th consecutive month, as well as the 27th consecutive month of overall economic growth.
The August PMI is 4.2% above the 12-month average of 57.0, and, like July, again represented the lowest reading over the last 12 months and also the lowest reading going back to June 2020’s 52.4. The highest reading over the last 12 months was October 2021’s 60.8.
ISM reported that 10 manufacturing sectors grew in August, including: Nonmetallic Mineral Products; Petroleum & Coal Products; Transportation Equipment; Computer & Electronic Products; Printing & Related Support Activities; Plastics & Rubber Products; Primary Metals; Machinery; Miscellaneous Manufacturing; and Food, Beverage & Tobacco Products. The seven industries seeing contraction, from July to August, included: Wood Products; Apparel, Leather & Allied Products; Furniture & Related Products; Paper Products; Chemical Products; Fabricated Metal Products; and Electrical Equipment, Appliances & Components.
The report’s key metrics were mixed in August, including:
Comments submitted by the ISM member respondents highlighted various themes, including: inventory concerns; mixed demand levels; and supply chain issues.
“Demand from customers is still strong, but much of that is because there is still fear of not getting product due to constraints. They are stocking up. There will be a reckoning in the market when the music stops, and everyone’s inventories are bloated,” said a Computer & Electronic Products respondent.
In an interview, Tim Fiore, Chair of the ISM’s Business Survey Committee, said that report checked all the right boxes, calling it “wonderful,” expanding in the same range over the last three months (June’s PMI reading was 53.0).
“Having three straight months at 53 is really good despite everything that has been happening,” he said. “We have seen improvements in supplier deliveries, which has gotten consistently better than compared to three months ago, and two months ago we started to see prices come down dramatically. And lead times have started to ease from record-highs. We need to see if it remains that way; I think it will.”
Fiore also noted how the manufacturing sector’s ability to hire improved in August compared to June and July and over the last five months.
“It is really a good report,” he said. “On the demand side, we saw new orders expand again back above 50, not dramatically, as those lead times need to come down a little bit more and maybe prices need to come down a bit more to get that new order number up to 54 or 55. New export orders disappointed, but it is no big surprise, given what is happening in China and Europe.
Looking ahead to the remainder of 2022, Fiore said he expects the PMI to be in the 51-to-55 range.
“I don’t see any more than that,” he said. “Outside of a hurricane driving up the supplier delivery number, I don’t see it going over 55. I don’t think the employment number will go up much more than where it is at. If it stays in the current range, it will be good. We are hoping for the production number to come up into the 55 range again and new orders to be around 52 or 53. This is where we ought to be. It feels like we are gliding along. The supply and demand imbalance is being fixed.”