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August PMI Index Bodes Well for Manufacturing

The Institute for Supply Management, or ISM, pegged the August PMI index at 56.3% for August—an indication of manufacturing growth.

August’s PMI Index of 56.3 percent represents an increase of 0.8 percentage points when compared to July’s reading of 55.5 percent. Note: A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. More importantly, the increase shows economic activity in the manufacturing sector expanded for the 13th consecutive month, with the overall economy growing for the 16th consecutive month.

“The past relationship between the PMI and the overall economy indicates that the average PMI for January through August (57.8 percent) corresponds to a 5.3 percent increase in real gross domestic product,” said Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “In addition, if the PMI for August (56.3 percent) is annualized, it corresponds to a 4.8 percent increase in real GDP annually.”

In terms of month-over-month improvement, the production and employment indexes experienced the greatest gains, while new orders continued to grow but at a slightly slower rate, Ore noted. Specifically, ISM's Production Index registered 59.9 percent in August, which is an increase of 2.9 percentage points from the July reading of 57 percent. An index above 51 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures. Meanwhile, ISM’s New Orders Index registered 53.1 percent in August, which is a decrease of 0.4 percentage pointS when compared to the 53.5 percent reported in July. This is the 14th consecutive month of growth in the New Orders Index. A New Orders Index above 50.2 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

Following are additional highlights from ISM’s Monthly Report on Business:

Eleven of the 18 manufacturing industries are reporting growth in August, in the following order:

  • Primary Metals
  • Apparel, Leather & Allied Products
  • Transportation Equipment
  • Fabricated Metal Products
  • Electrical Equipment, Appliances & Components
  • Miscellaneous Manufacturing
  • Computer & Electronic Products
  • Paper Products; Chemical Products
  • Food, Beverage & Tobacco Products
  • Printing & Related Support Activities

The complete August Report on Business is available online from the Institute for Supply Management.
 

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