U.S. Manufacturing Activity Hits 21-Month High

U.S. manufacturing activity posted a fourth straight month of expansion in August, hitting a level the index has not seen since January 2019, according to the Institute for Supply Management’s monthly Report on Business.

This is the third straight month of expansion for the manufacturing activity index, while the economy registered growth for a fourth consecutive month.

According to the ISM, U.S. manufacturing activity edged up another 1.8% in August, and now stands at 56%. Anything over 50% is considered expansionary.

In June, the ISM’s index posted a gain of 9.5%, rocketing from a severe contraction back into expansion. July’s gain was a more modest 1.6%, speeding up to a 1.8% in this most recent survey.

The breakdown of growth was similar to July’s report, with increase in activity led by new orders and production. Employment, however, remained in contraction.

Supplier deliveries slowed at a faster rate, raw materials inventories contracted while exports and imports grew.

Said Timothy Fiore, Chairman of the ISM: “After the coronavirus (COVID-19) brought manufacturing activity to historic lows, the sector continued its recovery. In August, the first full month of operations after supply chains restarted and adjustments were made for employees to return to work.”

Fiore went on to say that many companies went through an adjustment period with the many safety measures that needed to be implemented. Additionally, sentiment among industrial executives was positive, with 1.4 positive comments for every negative comment.

Additionally, the economic climate continues to impact investment, with many panelists putting off capital investments for the rest of 2020.

Said one executive in the machinery industry, “Capital equipment new orders have slowed again. Quoting is active. Many customers waiting for the fourth quarter to make any commitments.”

Of eighteen industries, fifteen reported growth in August (compared to thirteen in July). Growth was led by wood products; plastics and rubber products; food products; textiles and chemicals.

The three industries posting declines included printing & related support activities; petroleum products and furniture.

New Orders Soar

The ISM’s new orders index continued to surge, climbing another 6.1% in August to a level of 67.6%. This is the highest reading the new orders index has seen since January 2004.

One respondent on the electrical equipment sector reports “strong demand from existing and new customers for our products, stable-to-decreasing input costs for our operations, and record numbers of new business opportunities from prospective customers’ reshoring measures.”

Fifteen of eighteen industries reported an uptick in new orders for August, led by primary metals; plastics & rubber products; wood products and computer & electronic products.

Manufacturing Production Edges Up

The ISM’s Production Index rose another 1.2% in August. The production index now sits at 63.3% with fifteen of eighteen industries reporting growth in production in August.

Industries posting the strongest growth included wood products; primary metals; chemical products; plastics & rubber and nonmetallic mineral products.

It is, however, a challenging time for the assembly line, with one executive in the food products sector stating “[Production ramp-up] has been a struggle. We have started and stopped lines numerous times at all 18 of our manufacturing plants due to COVID-19 issues. Surprisingly, our direct suppliers have done an excellent job on shipping ingredients and packaging on time.”

Employment Still Contracting, but at a Slower Rate

Hiring and employment remains mired in contraction, the rare a soft spot in the ISM’s August report, with the index sitting at a contractionary 46.4% in August. Notably, however, employment is contracting at a slower rate, with the index edging up 2.1% over July’s reading of 44.3%.

Only eight of eighteen industries reported an increase in hiring for the month of August, led by textile mills; food, beverage & tobacco products; and non-metallic mineral products.

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