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PMI Index Dips to 50.6 in August

Manufacturing still expanding, but rate of growth is slowing down

A newly released report from the Institute for Supply Management showed the PMI Index fell 0.3 percentage points to 50.6 percent in August. While this still reflects an expansion in the manufacturing economy (a reading above 50 percent indicates that the manufacturing economy is generally expanding, while a reading below 50 percent indicates a contraction), there is a downside. The August PMI Index was the lowest reading since July 2009, when it registered 49 percent.

According to Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee, the reading suggests the manufacturing is growing, but at a slightly slower rate. “The overall sentiment is one of concern and caution over the domestic and international economic environment, which is affecting customers’ confidence and willingness to place orders, at least in the short term.”

In the grand scheme of things, according to Holcomb, a PMI in excess of 42.5 percent—over a period of time—generally indicates an expansion of the overall economy. That being said, the August PMI indicates growth for the 27th consecutive month in the overall economy, as well as expansion in the manufacturing sector for the 25th consecutive month. “The past relationship between the PMI and the overall economy indicates that the average PMI for January through August (56.8 percent) corresponds to a 5-percent increase in real gross domestic product (GDP),” Holcomb stated. “In addition, if the PMI for August (50.6 percent) is annualized, it corresponds to a 2.8 percent increase in real GDP annually.”

PERFORMANCE BY INDUSTRY

Of the 18 manufacturing industries covered in the survey, 10 reported growth in August, in the following order: Wood Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Fabricated Metal Products; Paper Products; Transportation Equipment; Chemical Products; Computer & Electronic Products; and Machinery. The six industries reporting contraction in August—listed in order—are: Plastics & Rubber Products; Textile Mills; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; and Primary Metals.

WHAT RESPONDENTS ARE SAYING

  • "Earlier chemical price increases are beginning to soften." (Chemical Products)
  • "Business is soft, confidence is down, and we are cutting inventory and expenses." (Machinery)
  • "Exports continue to be strong—domestic weak." (Computer & Electronic Products)
  • "Domestic sales are showing small improvements. International sales are showing larger improvements." (Fabricated Metal Products)
  • "Demand remains constant and strong." (Paper Products)
  • "Current headwinds in the national and international economic environment have increased uncertainty, and are affecting our customers’ willingness to commit to high-dollar equipment purchases." (Transportation Equipment)
  • "We continue to post solid numbers, but the situation seems tenuous." (Plastics & Rubber Products)
  • "Automotive business (represents 52 percent of our sales portfolio) continues to be strong. Core business has pulled back slightly." (Apparel, Leather & Allied Products)
  • "Sales continue to be sluggish." (Furniture & Related Products)

NEW ORDERS

ISM’s New Orders Index registered 49.6 percent in August, which is an increase of 0.4 percentage point when compared to the 49.2 percent reported in July. This is the second consecutive month of contraction in the New Orders Index, following 24 months of growth. The last time the index contracted was in June of 2009, when the New Orders Index registered 48.9 percent. A New Orders Index above 52.1 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

The complete August PMI report is available online.
 

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Automotive  •  Electronics  •  Industry Trends & Happenings

 

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