U.S. Manufacturing Activity Holds Steady in August as Sector Nears Supply/Demand Equilibrium

U.S. manufacturing activity held steady in August, with the sector achieving its 27th straight month of expansion and showing improvement in several key metrics, according to the Institute for Supply Management’s August survey of supply chain executives.

The ISM reports its index of manufacturing activity recorded no change in August, holding steady at 52.8%--the sector’s lowest reading since June 2020, but still in expansion territory.

Notable in August was a rebound in new orders, which had contracted in June and July. The ISM’s New Orders Index rose 3.3% in August and now stands at a reading of 51.3%.

Additionally, following three months of contraction, employment advanced in August as well, rising 4.3%, to an expansionary reading of 54.2%. And the much-watched prices index plunged further in August, falling 7.5% to its lowest reading since June 2020, suggesting a further easing of inflationary pressures on prices.

The ISM’s August report suggested the U.S. manufacturing sector is seeing further relief from the inflationary pressures plaguing manufacturers for several months. The ISM’s prices paid index fell further in August, down another 7.5% to its lowest reading since June 2020.

These significant improvements for the sector were offset by the ISM’s production index, which took a dive in August, falling 3.1% in August and skirting contraction with a reading of 50.4%.

Timothy Fiore, the Chairman of the ISM notes that the U.S. manufacturing sector “continues expanding at rates similar to the prior two months. New order rates returned to expansion levels, supplier deliveries remain at appropriate tension levels and prices softened again, reflecting movement toward supply/demand balance.” Fiore further noted noted that supplier delivery performance had posted its fourth straight month of improvement and that lead times have eased across all three categories of purchasing activity, with “the sector at or approaching supply/demand equilibrium.”

Fiore also noted a lower number of quits in August and that companies continued to hire at a strong rate in August.

In August, ten of eighteen industries reported growth, strongest in non-metallic mineral products; petroleum and coal products; transportation equipment; computer & electronic products and printing/related support activity. Wood products; apparel, leather & allied products; and furniture were among the sectors to report contraction.

What Manufacturers Are Saying About Business Conditions

Comments from manufacturers revealed some easing in supply chain restraints and high prices, while new challenges of high inventories and weaker demand are on the rise.

One executive in the transportation equipment sector reported, “Strong sales continue. The impact of the chip shortage is slowing, and the decreasing COVID-19 resurgence in Asia is now affecting production more than chips.”

Another in the nonmetallic mineral products industry noted, “Overall, I have seen much improvement in the availability of raw materials. However, trucking issues continued, and production capacity within some industries remains tight. I have growing concerns that as cement and mineral companies run ‘all out’ to meet demand, we will see more downtime due to maintenance (issues).”

Said an executive in the primary metals sector, “Demand is softening; however, we are continuing to produce to replenish inventory.”

“Inventories are far too high, and we are on pins and needles to see how quickly and at what magnitude our busy season begins,” said an executive in the food, beverage & tobacco products industry. “We will start seeing that in the next few weeks.” While another in the miscellaneous manufacturing sector responded “Business conditions are good, and demand is strong. Securing enough raw material supply to keep up is still a challenge.”

Crisis-Proof Your Supply Chain

At MNI, Our goal is to help your business thrive, so whether you’re looking to advertise your products and services to manufacturers, needing to find new suppliers, or are looking to reach out to decision-makers in the manufacturing world, our industrial solutions are here to support your mission.