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August manufacturing report signals broad decline


After just a few short months on the “growing” side of the benchmark number of 50, August’s Purchasing Management Index (PMI) fell 3.2% from July’s 52.6% into “contracting” territory at 49.4%, according to the Institute for Supply Management’s (ISM; Tempe, AZ) Manufacturing Report. That is just a tick down from the 49.5% seen in February before manufacturing began creeping slowly back. The roller coaster ride of 2016 is perhaps telling of an economy that is uncertain of its future.


All of the indexes surveyed by the ISM were primarily in “contracting” territory, which isn’t good news as we head into the final quarter of 2016. The New Orders Index tumbled from July’s 56.9% to 49.1% in August. Connected to that index, the Production Index also fell 5.8% from 55.4% in July to 49.6% in August. With both of those indexes heading in a downward direction, it stands to reason that the Backlog of Orders Index would follow suit, which it did, falling 2.5% to 45.5% in August from July’s 48%.  Attributed to downward movement of those three indexes, employment fell 1.1% from 49.4 in July to 48.3 in August.

The Supplier Deliveries Index also dropped 0.9% to 50.9 in August from 51.8 in July, as did the Customers’ Inventories Index, from 51% in July to 49.5% in August, a 1.5 percentage point drop that indicates inventories are getting too low. New Export Orders remained steady in the “growing” category at 52.5% for August, unchanged from July. The Imports Index fell from 52 in July to 47, a significant 5% drop into the contracting category.

The Prices Index remained in the “growing” category but backed off 2% to 53% in August from July’s 55%. Commodities affecting the plastics and moldmaking industries reported price increases that included plastics/resins (polypropylene); stainless steel, and titanium dioxide. However, steel (cold and hot rolled) was down in price— that industry currently is embroiled in a dumping dispute with China.

A comment from a respondent from the machinery segment of the ISM survey noted, “This past month, sales increased over the trend from the first half of the year. There seems to be a general, albeit slight, loosening of capital purse strings.”

Medical, which seems always to be a strong market segment, is “still strong,” said one respondent.

There is less optimism in the plastics and rubber segment, and there’s still some grousing about finding employees to fill job openings. “Hard to find production associates. Unemployment in the area is around 4 percent. Can’t get enough employees, [which] leads to lots of overtime.”

A number of automotive industry reports have noted a slowdown in that market segment, and one respondent to the ISM survey pretty much said it all: “Business conditions are generally flat.”

Overall, only six of the 18 manufacturing industries that the ISM surveys each month reported growth in August: printing & related support activities; nonmetallic mineral products; computer & electronic products; miscellaneous manufacturing; food, beverage & tobacco products; and chemical products. The other 11 manufacturing industries, including plastics and rubber.

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