U.S. manufacturing activity growth unexpectedly accelerates in August - ISM

A report from the Institute for Supply Management (ISM) showed on Wednesday the U.S. manufacturing sector’s activity continued to grow in August at a slightly stronger pace than in July.

The ISM's index of manufacturing activity came in at 59.9 percent last month, up 0.4 percentage point from an unrevised July reading of 59.5 percent. The August reading pointed to the expansion in the manufacturing sector for the 15th straight month but at the weakest pace since January.

Economists' had forecast the indicator to drop to 58.6 percent.

A reading above 50 percent indicates expansion, while a reading below 50 percent indicates contraction.

According to the report, the New Orders Index increased 1.8 percentage points to 66.7 percent in August, while the Production Index rose 1.6 percentage points to 60.0 percent, the Backlog of Orders Index went up 3.2 percentage points to 68.2 percent and the Inventories Index surged 5.3 percentage points to 54.2 percent. Meanwhile, the Employment Index fell 3.9 percentage points to 49.0 percent, pointing to contraction and the Supplier Deliveries Index dropped 3.0 percentage points to 69.5 percent. On the price front, the Prices Index declined 6.3 percentage points to 79.4 percent; this marked its first drop below 80 percent since December 2020.

Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee, noted that the Survey Committee members reported that their companies and suppliers continued to struggle to meet increasing demand levels. “All segments of the manufacturing economy are impacted by record-long raw-materials lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products,” he said. “The new surges of COVID-19 are adding to pandemic-related issues - worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems - that continue to limit manufacturing-growth potential. However, optimistic panel sentiment remained strong, with eight positive comments for every cautious comment.”

Fiore also noted that the past relationship between the PMI and the overall economy indicated that the PMI for August (59.9 percent) corresponds to a 4.8-percent increase in real gross domestic product (GDP) on an annualized basis.