ISM PMI Shows 10 Months of Decline in Manufacturing Activity

Recall that a PMI reading above 50% indicates general expansion in the manufacturing sector, while a reading below 50% indicates general contraction.

“The U.S. manufacturing sector shrank again, but the uptick in the PMI® indicates a slower rate of contraction. The August composite index reading reflects companies managing outputs appropriately as order softness continues, but the month-over-month increase is a sign of improvement,” said Timothy R. Fiore, chair of the ISM Manufacturing Business Survey Committee.

The new orders, prices, backlog of orders, supplier deliveries, inventories, and employment indices all remained in contraction territory, while the production index came in right at 50.

The ISM’s report on business surveys individuals from some of the largest manufacturing sectors. Three of the six largest sectors reported growth in August: transportation equipment; food, beverage & tobacco products; and petroleum & coal products. The steel-intensive primary metals, fabricated metal products, and machinery sectors all reported contraction in August.

Some survey participants’ thoughts were shared in the report. One respondent working in fabricated metal products commented: “Fourth quarter orders falling short of projection and indicating a slowdown in customer demand, though the first quarter forecast remains solid. Unclear if this is an inventory correction. Logistics stabilized and costs are matching 2019. Shortages limited to only a few items now, but suppliers are hesitant to add or replace labor needed in light of slowing demand.”

Another participant working in primary metals shared that automotive volume remains strong, though there is some preparation for a strike from the United Auto Workers at Ford, General Motors and Stellantis.

The individual added that contingency plans are in place. However, manufacturers continue to have issues recruiting general labor employees. Overall, their order book remains strong and ahead of 2022, even though operational efficiency is suffering due to a lack of human resources.

“Demand remains soft, but production execution is consistent with new, reduced output levels based on panelists’ companies order books. Suppliers continue to have capacity. Prices are generally stable. 62% of manufacturing gross domestic product (GDP) contracted in August, down from 92% in July. Additionally, the share of manufacturing GDP registering a composite PMI® calculation at or below 45% — a good barometer of overall manufacturing weakness — was 15% in August, compared to 25% in July and 44% in June, a clear positive,” Fiore added.