Tuesday, September 10, 2013

ISM Report Shows The Worst May Be Behind Us

Recent articles I've done on the manufacturing trend in the US have always been in the context of the damage done in employment from the Great Recession.  Whether reports  delivered mostly good or bad news, there was always a general sense behind the numbers that, though manufacturing has widely been regarded as the darling of the recovery, the sector was still at the mercy of the larger, dreary, economic outlook along with every other sector in the country.

Yet, the Institute of Supply Management's (ISM) latest Performance of Manufacturing Index (PMI) indicated an August  factory activity index of 55.7, slightly higher than the 55.4 percent in July, and a significant jump from 50.2 percent in the month of June.  This follows recent reports as far back as Spring of 2012 where the ISM report was indicating growth indexes under 50 percent, meaning the sector was shrinking, rather  than expanding.  And it's not just factory activity; to quote all the statistics in the report by Bradley J. Holcomb, ISM CPSM, CPSD, and chairman:

"August's PMI™ reading, the highest of the year, indicates expansion in the manufacturing sector for the third consecutive month. The New Orders Index increased in August by 4.9 percentage points to 63.2 percent, and the Production Index decreased by 2.6 percentage points to 62.4 percent. The Employment Index registered 53.3 percent, a decrease of 1.1 percentage points compared to July's reading of 54.4 percent. The Prices Index registered 54 percent, increasing 5 percentage points from July, indicating that overall raw materials prices increased when compared to last month. Comments from the panel range from slow to improving business conditions depending upon the industry."

This marks the sixth month in a row of general economic growth, the third consecutive month of growth in production, and perhaps more telling, the highest level of growth in production since May of 2004, with 13 of the 18 overall American manufacturing industries reporting expansion of some kind (although it's a little worrisome that one of the industries reporting contraction in July is machinery).

Is it safe to say the economy, on the back of the steady expansion of American manufacturing, is out of the woods?  Probably not.  However, past think-tanks and index reports had been careful to view all numbers in the context of phrases like "double-dip recession", "stagnation", and "holy hell's bells, the sky is falling".  The general stability and consistency this portion of the calendar year is contributing to an overall optimistic outlook moving forward for the US economy.  And it's nice to know that through it all was the steady hand of the manufacturing sector.  Let's hope it continues.

Donal Thoms-Cappello is a freelance writer for Rotor Clip Company.

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