PMI Up a Little in August after Two Months of Declines

The US Purchasing Managers Index (PMI) for August, released last week by the Institute for Supply Management (ISM), came in at 52.8, flat with July's number, but still above the key 50 level that separates US  manufacturing expansion from contraction.

Supply Chain Digest Says...   The Prices Index, which tracks the cost of materials and components from suppliers continues to fall hard What do you say? Click here to send us your comments   Click here to see reader feedback

After falling for the second straight month June and July, the August PMI reflects the uncertain state of the US economy, which is sending mixed signals. The PMI is showing a slowing manufacturing environment - but one still in positive territory.

The July figure also indicates expansion in the US overall economy for the 27th month in a row after the last contractions in April and May 2020. (See chart of the PMI scores for the last 12 months below - the average score over that period was a strong 57.0)

However, the July and August scores of 52.8 score were also the lowest figures since June 2020, when it registered 52.4.

Other measures in the ISM report were mixed.

The important New Orders Index came in at 51.3, which was 3.3 percentage points higher than the 48.0 level recorded in July, which had indicated a slowdown in orders.

The Backlog of Orders Index registered 53.0, 1.7 percentage points above the July reading of 51.3 but not much above the 50 mark.

However, the Inventories Index registered 53.1, 4.2 percentage points lower than the July reading of 57.3 and falling for the second straight month, indicating companies are cutting back on inventory levels.

The Prices Index, which tracks the cost of materials and components from suppliers continues to fall hard. It came in at 52.5, down 7.5 percentage points from July, which in turn was down a huge 18.5 percentage points compared to the June. So a slight majority of companies are still seeing rising input costs - but that number is falling fast, as it would appear that inflation is declining.

US PMI Last 12 Months

Source: ISM

(See More Below)

Ten of the 18 manufacturing sectors s ISM tracks reported growth in August.

As always, there were some interesting comments from PMI survey respondents. For example, one electronics industry manager had this to say: "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."

Added a manager in the food/beverage sector: “Inventories are far too high, and we are on pins and needles to see how quickly and at what magnitude our busy season begins. We will start seeing that in the next few weeks.”

Finally, a manager in the plastic sector had this to say: “Orders are still strong through the end of the year, but there is a feeling that customers may start pulling back on orders, either cancelling them or pushing them into 2023.”

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