Manufacturing Sector Expands in August - Modern Distribution Management

Manufacturing Sector Expands in August

The 1.5 years of contraction came to an end, but not all industries reported growth in the latest ISM report.

The manufacturing sector expanded in August, following 18 months of contraction, according to the latest Manufacturing ISM Report on Business.

The Institute for Supply Management reported: "The year-and-a-half decline in manufacturing output has come to an end, as 11 of 18 manufacturing industries are reporting growth when comparing August to July. While this is certainly a positive occurrence, we have to keep in mind that it is the beginning of a new cycle and that all industries are not yet participating in the growth. The August index of 52.9% is the highest since June 2007. The 4 percentage point increase was driven by significant strength in the New Orders Index, which is up 9.6 points to 64.9 percent, the highest since December 2004. The growth appears sustainable in the short term, as inventories have been reduced for 40 consecutive months and supply chains will have to re-stock to meet this new demand."


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


“The ISM report showing that manufacturing activity grew in August concurs with our view that the long, severe manufacturing recession has bottomed out,” said Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI. “At 52.9 percent in August, the index is above the 50 percent threshold dividing growth from decline. Manufacturing activity in this early stage of the recovery is being driven by a classic inventory swing—particularly in the automotive sector. It is less that inventories are being added as it is that firms are not destocking. Production, therefore, has to rise as fewer products and materials come out of inventories. 

“An encouraging development in the August ISM report is that prices have accelerated,” he added.  “Rising supplier price pressure confirms that demand is firming. Another positive sign is that US manufacturing trade is advantageous. Growing U.S. exports at a time of flat imports add an important external demand element to the manufacturing recovery. While the August improvement in the indicator is welcome, we caution against over optimism about the pace of the recovery. Previous industrial recoveries were accelerated by a pace of consumer indebtedness that seems unlikely in this cycle.”

More details here.

 

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