August 2018 Manufacturing ISM Report on Business: PMI at 61.3%

Estimated reading time: 3 minutes

Economic activity in the manufacturing sector expanded in August, and the overall economy grew for the 112th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report on Business.

The August PMI registered 61.3%, an increase of 3.2%age points from the July reading of 58.1%. The New Orders Index registered 65.1%, an increase of 4.9 percentage points from the July reading of 60.2%. The Production Index registered 63.3%, a 4.8-percentage point increase compared to the July reading of 58.5%. The Employment Index registered 58.5%, an increase of 2%age points from the July reading of 56.5%. The Supplier Deliveries Index registered 64.5%, a 2.4-percentage point increase from the July reading of 62.1%. The Inventories Index registered 55.4%, an increase of 2.1%age points from the July reading of 53.3%. The Prices Index registered 72.1% in August, a 1.1-percentage point decrease from the July reading of 73.2%, indicating higher raw materials prices for the 30th consecutive month.

“Comments from the panel reflect continued expanding business strength. Demand remains strong, with the New Orders Index at 60% or above for the 16th straight month, and the Customers’ Inventories Index remaining low. The Backlog of Orders Index continued to expand, at higher levels compared to the previous month. Consumption improved, with production and employment continuing to expand, at higher levels compared to July, despite shortages in labor and materials. Inputs (expressed as supplier deliveries, inventories and imports) expanded strongly due to continuing supply chain inefficiencies, positive increases in inventory levels and a slight easing of imports. Lead-time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue, but at more manageable levels.

“Export orders expanded at stable levels. Prices pressure continues, but the index softened for the third straight month and remains above 70. Demand is still robust, but the nation’s employment resources and supply chains continue to struggle. Respondents are again overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations. Panelists are actively evaluating how to respond to these business changes, given the uncertainty,” says Fiore.

Manufacturing Index Summaries

PMI

Manufacturing expanded in August as the PMI registered 61.3%, an increase of 3.2%age points from the July reading of 58.1%. “This indicates strong growth in manufacturing for the 24th consecutive month, led by continued expansion in all subindexes that make up the PMI. The PMI reached its highest level since May 2004, when it registered 61.4%,” says Fiore. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

A PMI above 43.2%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the August PMI indicates growth for the 112th consecutive month in the overall economy and the 24th straight month of growth in the manufacturing sector. “The past relationship between the PMI and the overall economy indicates that the PMI for August (61.3%) corresponds to a 5.6% increase in real gross domestic product (GDP) on an annualized basis.”

New Orders

ISM’s New Orders Index registered 65.1% in August, which is an increase of 4.9 percentage points when compared to the 60.2% reported for July, indicating growth in new orders for the 32nd consecutive month. “Customer demand reversed a three-month softening of expansion. New orders continued to expand at high levels, with the index at or above 60% for the 16th straight month. The index achieved its highest level since January 2018, when it registered 65.4%,” says Fiore. A New Orders Index above 52.4%, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

Production

ISM’s Production Index registered 63.3% in August, which is an increase of 4.8 percentage points when compared to the 58.5% reported for July, indicating growth in production for the 24th consecutive month. “Production rebounded in August, with the index reaching the highest level since January 2018 (64.5%). However, labor constraints throughout the supply chain and transportation difficulties continue to limit full production potential,” says Fiore. An index above 51.5%, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

Employment

ISM’s Employment Index registered 58.5% in August, an increase of 2%age points when compared to the July reading of 56.5%. This indicates growth in employment in August for the 23rd consecutive month. “Employment continued to expand, supporting production growth during the month. Respondents continued to note labor-market issues as a constraint to their production and their suppliers’ production capability,” says Fiore. An Employment Index above 50.8%, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

For more information, click here.