Manufacturing output shines in August, reports ISM

Coming off of a mild decline from June to July, manufacturing output showed solid growth from July to August, according to the monthly Manufacturing Report on Business issued by the Institute for Supply Management (ISM) today.

The report’s key metric, the PMI, headed up 3.2% to 61.3 (a reading of 50 or higher indicates growth) and has now grown for 24 consecutive months, with the overall economy now having grown for 112 months. The August PMI marks its highest reading over the last 12 months and is 2% above the 12-month average of 59.3.

ISM reported that 16 of the 18 manufacturing sectors reported growth in August, including: Computer & Electronic Products; Apparel, Leather & Allied Products; Textile Mills; Paper Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Furniture & Related Products; Machinery; Nonmetallic Mineral Products; Transportation Equipment; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Plastics & Rubber Products; Fabricated Metal Products; Chemical Products; and Printing & Related Support Activities. The two industries reporting contraction in August are: Wood Products; and Primary Metals.

Like the PMI, growth was apparent in each of the report’s key metrics, too.

New orders, which are commonly referred to as the engine that drives manufacturing, headed up 4.9% to 61.3, marking the 32nd month of growth for the segment. ISM said that customer demand “reversed a three-month softening of expansion, with the index at or above 60% for the 16th straight month, as well as being at its highest level since last January’s 65.4.

Production also grew for the 24th consecutive month, up 4.9% to 65.1. This is its highest reading since last January’s 64.5 Employment rose 2% to 58.5, with growth intact for the 23rd consecutive month, and supplier deliveries slowed at a faster rate to 64.5 (above 50 indicates contraction. Inventories were up 2.1% to 55.4.

Comments submitted to the report by ISM member respondents were largely positive, with many comments citing the potential impact of tariffs.

“We have seen a slight uptick in international business. Suppliers do not seem to know how to handle the recently imposed tariffs. Most are waiting to re-evaluate potential price increases until September,” a Computer & Electronic Products respondent said.

Tim Fiore, chair of the ISM’s Manufacturing Business Survey Committee, said in an interview that this was a very strong report, with all key metrics seeing solid gains.

“There were very few negatives, and the negatives were very light,” she said. “This was a demand-driven expansion, which was shocking for the month of August, with people on vacations. Demand [new orders] was up almost five points.”

A decent amount of these gains, he said, were driven by the food and beverage and computers and electronics sectors.

And the cumulative 6.8% gain in production and employment, on the consumption side, in tandem with the new orders gains, are very encouraging. Fiore also noted that seeing backlog of orders up 2.8% to 57.5 was a positive and customers’ inventories up 1.6% to 41 remained on the lower end.

August prices, at 72.1, remained high even though they dropped 1.1%.

“Some respondents indicated they have moved away from plastics and to some extent aluminum and steel has started to soften,” Fiore said. “It would not surprise me in the next couple of months whether aluminum and steel drop off or are up in price. Active and passive computer components are up in price, too. As long as production and demand stay up, prices will stay up, too.”

August imports declined by 0.8% to 53.9, with new export orders off 0.1% to 55.2.

Fiore observed imports were down for the second straight month and would have been softer, save for the fact that production demands are still pulling imports in.

“There have also been some comments relating to accelerating deliveries to beat the tariff impact,” he said. “That still seems to be going on, and on the export side, there is concern about exporting product to Asia, due to concerns about being caught on the water. When it gets to the port of entry in China with a 25% tariff, it is not going to sell there so then what do you do with it? If you then need to sail it back, it becomes a real mess. Some of that is coming into play here. The whole export market is a really big concern, with some manufacturers talking about re-assessing manufacturing footprints to accommodate a continual argument in the tariff area, which is alarming. There have been comments about export markets and revenues being impacted by counter tariffs. Two weeks ago, I would have said there was no end in sight to the tariffs, and this us just escalating. But if you asked me last week, well now they seem to be talking…but nobody really knows what is going on. It’s like a high-speed game of chicken. The worst enemy of business is uncertainty.”

By mid-September, Fiore said there is a decent chance the tariff situation will be resolved, with it being described as a win for the U.S. and other countries, too, adding there is a lot of pressure on the White House by businesses to get it done.