The Manufacturing PMI (formerly the ISM Manufacturing Index) is derived from a survey of purchasing managers and their outlook on overall conditions by looking at factors such as orders for durable goods, industrial production, and hiring. It gives a general direction rather than the specific strength of the factory sector and manufacturing activity in the U.S. A reading above 50 is an indicator that the manufacturing sector is growing while a reading below 50 indicates a contraction.
In August, the Manufacturing PMI rose by 0.4 percentage points to a level of 59.9. The reading came in above market forecasts, which expected the third consecutive monthly decline. This marks the fifteenth consecutive month of expansion for the manufacturing industry and for the overall economy, as the index remains above 50 points. All six major manufacturing industries continued to report moderate to strong growth last month, and only two of the individual industries that make up the index reported a contraction—textile mills and nonmetallic mineral products.
The Manufacturing Index is comprised of several equally weighted subindices that measure conditions in the industry. All segments of the industry continue to be impacted by unusually long lead times and shortages of raw materials. Likewise, rising commodity prices and a lack of available labor remain obstacles for potential production. In fact, the employment index returned to contraction territory last month. Nevertheless, demand expanded in August, with new orders rising and customers’ inventories further contracting. The input-driven constraints that firms are facing, however, are making it challenging for them to meet the increased demand. There are signs that some of these shortages could begin to ease soon, as inventories returned to expansion territory due to improvements in raw material deliveries. Until these hurdles are fully resolved, manufacturing output will remain largely unable to meet the current levels of demand—which could weigh on the economic recovery and force prices higher.
September 1, 2021