The US Purchasing Managers Index (PMI) for August from the Institute for Supply Management (ISM) came at a level of 47.6, up 1.2 percentage points versus the 46.4 recorded in July, but also below the key 50 mark that separates US manufacturing expansion from contraction for the 10th straight month.
Before that the US saw a 28-month period of manufacturing growth after May 2020, not long after the start of the pandemic earlier that year.
The PMI tracks closely but not exactly with the overall US economy. The July PMI indicates a ninth month of overall economic contraction after a 30-month period of expansion.
What’s more, the New Orders Index remained in contraction territory at 46.8, half a percentage point lower than the figure of 47.4 recorded in July, in bad news for future US manufacturing activity.
It was mostly negative news in other related measures as well. In-between was the Production Index, with a 1.6-percentage point increase compared to July that took it right to the key 50 mark, meaning manufacturing output in the month was flat.
The Prices Index was at 48.4, up a strong 5.8 percentage points compared to the July. That means companies saw a decrease in the cost of components, materials and other inputs, but not as strongly as last month. This index (below 50 = falling prices) was just not that many months ago above 80, as inflation took off.
In more bad economic news, the Backlog of Orders Index registered 44.1, 1.3 percentage points higher than the July. Still, it indicates order books are again shrinking, with the level still well below the 50 mark.
However, the Supplier Deliveries Index figure of 48.6 was 2.5 percentage points higher than the 46.1 recorded in July. This is the highest reading in the past 11 months. Supplier Deliveries is the only ISM index that is inversed; a reading of above 50 indicates slower deliveries, which is typical as those economy improves and customer demand increases. So deliveries were still getting faster in August but at a slower rate.
The Inventories Index decreased by 2.1 percentage points to 44.0, indicating inventory levels at companies are decreasing.
So overall, August again saw almost all metrics come in below the 50 level.
"The US manufacturing sector shrank again, but the uptick in the PMI indicates a slower rate of contraction. 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," commented Timothy Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee.
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As always, the ISM report provides a graphic of the full PMI scores the last 12 months, which as can be seen has the measure trending down since September of 2022 and below 50 since November, and it is now averaging just 47.8 over the past year.
US PMI Last 12 Months
Source: ISM
Just five of the 18 industry US sectors tracked by the PMI reported growth in August: Printing & Related Support Activities; Transportation Equipment; Food, Beverage & Tobacco Products; Petroleum & Coal Products; and Miscellaneous Manufacturing. That was up though only two sectors expanding in July.
As always, there were some interesting comments from PMI survey respondents.
A respondent in the chemical sector commented that "Demand still weak. Customer inventories are getting depleted; however, we are not seeing a real uptick in demand. General supply conditions are softening.”
But another from the computer & electronics sector stated that “Further reductions in customer orders due to the economic situation and also their working down of own inventories. Backlog is dwindling, but still showing robust revenue."
Finally, a manager in the food, beverage & tobacco sector noted that "Customer orders have softened. This is likely due to customers’ increased confidence in the supply chain, (which) has them reducing their inventories. Customers are also being pinched with higher interest rates. Additionally, consumers are feeling their purchasing power eroded by stubbornly high inflation, so they are purchasing less.”
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