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Manufacturing Index: Production, New Orders Grow, Plus Comments from Dr. Joe Webb

Press release from the issuing company

(Tempe, Arizona) — Economic activity in the manufacturing sector grew in August for the second consecutive month, while the overall economy grew for the 22nd consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business. The report was issued today by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee and group director, strategic sourcing and procurement, Georgia-Pacific Corporation. "The manufacturing sector showed improvement for the second month as the PMI is at its highest level since December of last year. Though two months of growth do not establish a trend, there is strength in the various segments of this report that we have not seen for some time. New Orders and Production have both been above 50 percent for four consecutive months; the continuation of a second half recovery appears on track." ISM's Backlog of Orders Index indicates that order backlogs improved again in August. However, manufacturing Employment continued to decline in August as the index remained below the breakeven point (an index of 50 percent) for the 35th consecutive month. ISM's Prices Index indicates that manufacturers experienced higher prices for the 18th consecutive month. New Export Orders grew in August for the 20th consecutive month, while August's Imports Index grew for the 10th consecutive month. Comments from purchasing and supply managers appear to be divided by industry. Reports from the Food and Primary Metals industries indicate continuing softness, while the Electronic Components & Equipment, Fabricated Metals, and Industrial & Commercial Equipment & Computers industries claim to be improving. Manufacturers supplying the construction industry continue to mention a positive effect from the seasonal upswing in the industry. Natural gas costs have stabilized somewhat, but are still at a rate that concerns manufacturers. ISM's PMI is 54.7 percent in August, an increase of 2.9 percentage points when compared to 51.8 in July. ISM's New Orders Index rose 3 percentage points from 56.6 percent in July to 59.6 percent in August. ISM's Production Index rose 8.3 percentage points from 53.3 percent in July to 61.6 percent in August. The ISM Employment Index is at 45.9 percent for August, a decrease of 0.2 percentage point when compared to the 46.1 percent reported in July. ISM's Supplier Deliveries Index registered 53.3 percent, 2.2 percentage points higher than July's 51.1 percent. ISM's Inventories Index declined to 42.5 percent in August from the 45.9 percent reported in July. ISM's Customers' Inventories Index for August is at 43 percent, an increase of 0.5 percentage point compared to the July reading of 42.5 percent. ISM's Prices Index in August is 53 percent, the same as reported in July. ISM's Backlog of Orders Index increased 0.5 percentage point, registering 51.5 percent in August compared to 51 percent in July. ISM's New Export Orders Index registered 55.3 percent, up 1.5 percentage points from July's 53.8 percent, while ISM's Imports Index declined 0.9 percentage point to 55.1 percent in August from 56 percent in July. "The surge in August Production is very positive for the manufacturing sector. The Production Index is the highest that it has been since June 1999, when it also registered 61.6 percent. The New Orders Index reflected its highest reading since January 2003. The overall picture is encouraging as many manufacturers traditionally experience an upturn during the last four months of the year," said Ore. Of the 20 industries in the manufacturing sector, 13 industries reported growth: Leather; Furniture; Wood & Wood Products; Apparel; Instruments & Photographic Equipment; Miscellaneous*; Electronic Components & Equipment; Printing & Publishing; Chemicals; Transportation & Equipment; Fabricated Metals; Industrial & Commercial Equipment & Computers; and Glass, Stone, & Aggregate. "Sulfuric Acid is the only commodity reported in short supply. Commodities reported up in price are: Aluminum; Aluminum Extrusions; Caustic Soda; Chemicals; Copper; Natural Gas; Nickel; Stainless Steel; Steel; and Steel Scrap. The commodities reported down in price are Caustic Soda; Cocoa; Corrugated Cartons; Ethylene; Natural Gas; PET; Plastic Resins; Polypropylene; and Steel — Coated," Ore stated. --- Comments from Dr. Joe Webb The ISM manufacturing report was very positive on Tuesday. Backlogs were up, inventories were lower, and supplier deliveries were slower (I think they call it vacations and factory shutdowns). Backlogs and low inventories mean that Q3 may look better than most expect, and will lead to a strong Q4. The report also implies that productivity is still increasing as employment trends in manufacturing are still on the decline, which also implies low inflation ahead. The ISM claims that their report also implies that the GDP is moving at a 4.3% rate. At that rate, employment would start to show rebounds as well. The good news continues to mount. ---- Premium Access Members at WhatTheyThink.com can view more analysis in Dr. Joe Webb’s weekly column on Friday, appropriately called “Fridays with Dr. Joe”.