ISM: U.S. Manufacturing (PMI) Expanded More Than Expected In August

by Ike Obudulu Posted on September 4th, 2018

U. S. Manufacturing expanded in August as the PMI registered 61.3 percent, an increase of 3.2 percentage points from the July reading of 58.1 percent, Institute for Supply Management (ISM) data released today show. Economists expected August PMI to  register at 57.6 percent

“This indicates strong growth in manufacturing for the 24th consecutive month, led by continued expansion in all subindexes that make up the PMI. The PMI reached its highest level since May 2004, when it registered 61.4 percent,” says ISM. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the August PMI indicates growth for the 112th consecutive month in the overall economy and the 24th straight month of growth in the manufacturing sector.

“The past relationship between the PMI® and the overall economy indicates that the PMI for August (61.3 percent) corresponds to a 5.6-percent increase in real gross domestic product (GDP) on an annualized basis.”

“Comments from the panel reflect continued expanding business strength. Demand remains strong, with the New Orders Index at 60 percent or above for the 16th straight month, and the Customers’ Inventories Index remaining low. The Backlog of Orders Index continued to expand, at higher levels compared to the previous month. Consumption improved, with production and employment continuing to expand, at higher levels compared to July, despite shortages in labor and materials. Inputs (expressed as supplier deliveries, inventories and imports) expanded strongly due to continuing supply chain inefficiencies, positive increases in inventory levels and a slight easing of imports. Lead-time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue, but at more manageable levels.

“Export orders expanded at stable levels. Prices pressure continues, but the index softened for the third straight month and remains above 70. Demand is still robust, but the nation’s employment resources and supply chains continue to struggle. Respondents are again overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations. Panelists are actively evaluating how to respond to these business changes, given the uncertainty,” says ISM.

Of the 18 manufacturing industries, 16 reported growth in August, in the following order: Computer & Electronic Products; Apparel, Leather & Allied Products; Textile Mills; Paper Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Furniture & Related Products; Machinery; Nonmetallic Mineral Products; Transportation Equipment; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Plastics & Rubber Products; Fabricated Metal Products; Chemical Products; and Printing & Related Support Activities. The two industries reporting contraction in August are: Wood Products; and Primary Metals.

Why Markets Care About ISM Manufacturing PMI

ISM Manufacturing PMI (also called Manufacturing ISM Report On Business) measures the level of a diffusion index based on surveyed purchasing managers in the manufacturing industry

It is derived from a survey of about 400 purchasing managers which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories;

It is released monthly, on the first business day after the month ends by the Institute for Supply Management (ISM) – before most of the official data on industrial output, manufacturing and Gross Domestic Product (GDP) become available.

The PMI covers five major survey sectors/areas: new orders, inventory deals, supplier deliveries & employment, and production. In doing so, it asks the respondents about changes in their discernment of key business variables from the month before. After getting the data, a composite index is constructed.

So, basically, it is a survey-based measure that asks questions about any change in business conditions, whether it is improving or not.

The Purchasing Managers’ Index (PMI) is a number from 0 to 100. Above 50 indicates expansion, below 50 indicates contraction, and at 50 indicates no change.

PMI = (Pi * 1) + (Pn * 0.5) + (Pd * 0)

Where:
Pi = percent of answers reporting an improvement
Pn = percent of answers reporting no change
Pd = percent of answers reporting a deterioration

The usual effect s that ‘Actual’ greater than ‘Forecast’ is good for the dollar and vice versa.

ISM Manufacturing PMI is a leading indicator of economic health – businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company’s view of the economy. PMI is both survey-based and an investor sentiment measure of the economy’s manufacturing sector. Digital participants and investors who invested in some manufacturer company must keep up with the market trends by following purchasing managers’ index (PMI).

Other Economy News : U.S. Construction Spending Inches Up Less Than Expected In July

A report released by the Commerce Department on Tuesday showed a modest uptick in construction spending in the U.S. in the month of July.

The Commerce Department said construction spending inched up by 0.1 percent to an annual rate of $1.315 trillion in July after falling by 0.8 percent to a revised rate of $1.314 trillion in June.

Economists had expected construction to rise by 0.5 percent compared to the 1.1 percent slump originally reported for the previous month.

The modest increase in construction spending came as spending on public construction climbed by 0.7 percent to an annual rate of $304.5 billion.

Spending on educational construction surged up by 2.1 percent to a rate of $71.6 billion, while spending on highway construction rose by 0.4 percent to a rate of $94.2 billion.

Meanwhile, the report said spending on private construction edged down by 0.1 percent to a rate of $1.011 trillion.

Spending on residential construction climbed by 0.6 percent to a rate of $560.1 billion, but spending on non-residential construction tumbled by 1.0 percent to a rate of $450.9 billion.

Compared to the same month a year ago, total construction spending in July was up by 5.8 percent.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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