Economy

Manufacturing Levels Continued to Improve in August

The economy may have fallen into an instant and deep recession in 2020, but economic activity is continuing to come back to life in a major way. After all, you have to be able justify those record index levels in stocks by some real dollars and cents at some point. The ISM Manufacturing Index came in at 56.0 for the month of August.

July’s ISM Manufacturing Index had been reported as 54.2, and Econoday was calling for a consensus estimate of 54.5 for August, out of its range of economist estimates of 53.4 to 55.0. The Wall Street Journal’s published consensus for August was 55.0.

This also represents the fourth straight month of levels above 50, which generally corresponds with higher manufacturing output.

The ISM Manufacturing Index had been expected to accelerate further in August after the report for July showed robust strength in new orders. That said, the July levels in the manufacturing sector had shown a continued contraction in hiring.

The New Orders Index rose by 6.1 percentage points to 67.6%, and the Production Index rose by 1.2 percentage points to 63.3%. Another gain was seen in the Backlog of Orders Index with a 2.8 percentage point gain to 54.6%. The Supplier Deliveries Index rose by 2.4 percentage points to 58.2%.

Where the report is still showing a drag is in the Employment Index. After a weak July, it rose 2.1 percentage points but still came in under the breakeven mark at 46.4% for August.

All in all, the manufacturing levels are continuing to recover. Companies are still having to reconfigure factories and overall sentiment is positive. Shortening up the summaries led to this view:

Demand expanded, inventories are low and deemed a positive for future production, and backlog is up again. Consumption is measured by the Production and Employment indexes and this also contributed positively as industries have continued to expand output at the same time that inputs (supplier deliveries, inventories and imports) were flat and as overall prices are increasing.

Three sectors are acting as a drag and are holding back against big capital investments for the rest of 2020. The ISM pointed to commercial aerospace equipment outfits, office furniture and commercial office building subsuppliers, and companies tied to oil and gas as laggards. Those three also represent about 20% of the manufacturing output.