Manufacturing Sector Faces Continued Contraction in August

TEMPE, Ariz. — The ISM Manufacturing PMI Report reveals that economic activity in the manufacturing sector experienced contraction in August for the sixth consecutive month. This follows two months of growth, with the period before that marked by 26 straight months of contraction.

The report, released by Susan Spence, MBA, Chair of the Institute for Supply Management Manufacturing Business Survey Committee, indicates a slight improvement in metrics.

Key Highlights from the Manufacturing PMI

“The Manufacturing PMI registered 48.7 percent in August, an increase of 0.7 percentage points from July’s 48 percent. The overall economy continued its expansion for the 64th month, despite a brief contraction in April 2020.”

The report showed that the New Orders Index suggested growth in August, jumping to 51.4 percent—up 4.3 percentage points from July’s 47.1 percent. However, the Production Index fell to 47.8 percent, marking a decline of 3.6 percentage points from July’s 51.4 percent. The Prices Index also continued to exhibit expansion, registering 63.7 percent, although it was down 1.1 percentage points from July.

Sector Performance Overview

The Backlog of Orders Index registered at 44.7 percent, while the Employment Index showed slight improvement, registering 43.8 percent—an increase of 0.4 percentage points from July.

“The Supplier Deliveries Index indicated slower delivery performance, up 2 percentage points to 51.3 percent from July’s 49.3 percent; a figure above 50 signals slower deliveries, which is typical as the economy improves.”

The Inventories Index showed a minor improvement to 49.4 percent, while the New Export Orders Index reading stood at 47.6 percent, reflecting a 1.5 percentage point increase from July.

Current Trends and Challenges

As the manufacturing sector grapples with economic uncertainty, two out of four demand indicators improved. The New Orders and New Export Orders indexes showed gains, contrasting with the Customers’ Inventories and Backlog of Orders indexes that contracted at a slightly faster rate.

The contraction was noted to be at a slower pace, backed primarily by the growth in new orders. However, production levels have also dropped closely in line with these new orders, diminishing the overall effectiveness of the Manufacturing PMI increase.

Economic Impacts and Industry Insights

Data indicates that 69 percent of the manufacturing sector’s GDP contracted in August, down from 79 percent in July. A mere 4 percent of GDP is strongly contracting, a significant decline from 31 percent in the previous month. The report found that two of the six largest manufacturing industries saw expansion in August, a notable uptick from none in July.

Industries Reporting Growth

• Textile Mills
• Apparel, Leather & Allied Products
• Food, Beverage & Tobacco Products
• Petroleum & Coal Products
• Nonmetallic Mineral Products
• Miscellaneous Manufacturing
• Primary Metals

Industries Experiencing Contraction

• Paper Products
• Wood Products
• Plastics & Rubber Products
• Transportation Equipment
• Furniture & Related Products
• Machinery
• Electrical Equipment, Appliances & Components
• Computer & Electronic Products
• Chemical Products
• Fabricated Metal Products

What Respondents Are Reporting

• “A 50-percent tariff on imports from Brazil, combined with the elimination of the specialty sugar quota, means the price of certified organic cane sugar is set to rise significantly.” (Food, Beverage & Tobacco Products)
• “Orders across most product lines have decreased, with increased financial uncertainty impacting our expectations.” (Chemical Products)
• “Tariffs are causing chaos in planning and increasing costs.” (Petroleum & Coal Products)
• “The trucking industry is contracting significantly with no activity in transportation equipment.” (Transportation Equipment)

As we look ahead, manufacturers face ongoing challenges stemming from tariffs, fluctuating prices, and overall economic uncertainty. The call for better stability in trade policies remains a prevalent theme as companies navigate these turbulent times.