Economic activity in the manufacturing sector expanded in August, following 18 consecutive months of contraction, and the overall economy grew for the fourth consecutive month, according to the latest Manufacturing Institute for Supply Management (ISM) Report On Business®. ISM's manufacturing index rose to 52.9 in August, from 48.9 in July. It's the first reading above 50, which indicates expansion, since January 2008. It's also the highest since June 2007.

"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," said Norbert J. Ore, CPSM, C.P.M., chair of the ISM Manufacturing Business Survey Committee. "The August index of 52.9 percent 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.

PMI

Manufacturing's 18 consecutive months of decline ended in August as the PMI registered 52.9 percent, which is 4 percentage points higher than the 48.9 percent reported in July. This is the highest reading since June 2007, when the index also registered 52.9 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 41.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the fourth consecutive month in the overall economy, as well as expansion in the manufacturing sector for the first time since January 2008. Ore stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through August (42.2 percent) corresponds to a 0.3 percent increase in real gross domestic product (GDP). However, if the PMI for August (52.9 percent) is annualized, it corresponds to a 3.7 percent increase in real GDP annually."

New Orders

ISM's New Orders Index registered 64.9 percent in August, 9.6 percentage points higher than the 55.3 percent registered in July. This represents the second consecutive month of growth in the index and the highest reading since December 2004, when it registered 66.3 percent. A New Orders Index above 48.8 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

The 13 industries reporting growth in new orders in August — listed in order — are: Textile Mills; Paper Products; Printing & Related Support Activities; Miscellaneous Manufacturing; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Wood Products; Chemical Products; Fabricated Metal Products; Plastics & Rubber Products; Transportation Equipment; and Machinery. The three industries reporting decreases in new orders in August are: Furniture & Related Products; Primary Metals; and Food, Beverage & Tobacco Products.

Production

ISM's Production Index registered 61.9 percent in August, which is an increase of 4 percentage points from July's reading of 57.9 percent. An index above 50.4 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. This is the third consecutive month the Production Index has registered above 50 percent, following nine consecutive months of contraction.

The 13 industries reporting growth in production during the month of August — listed in order — are: Textile Mills; Apparel, Leather & Allied Products; Paper Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Printing & Related Support Activities; Transportation Equipment; Nonmetallic Mineral Products; Chemical Products; Fabricated Metal Products; Primary Metals; and Machinery. The four industries reporting decreases in production in August are: Furniture & Related Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; and Wood Products.

Employment

ISM's Employment Index registered 46.4 percent in August, which is 0.8 percentage point higher than the 45.6 percent reported in July. This is the 13th consecutive month of decline in employment. An Employment Index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Four of the 18 manufacturing industries reported growth in employment in August: Apparel, Leather & Allied Products; Paper Products; Miscellaneous Manufacturing; and Computer & Electronic Products. The nine industries that reported decreases in employment during August — listed in order — are: Furniture & Related Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Primary Metals; Chemical Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Wood Products.

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower in August as the Supplier Deliveries Index registered 57.1 percent, which is 5.1 percentage points higher than the 52 percent registered in July. This is the third consecutive month the Supplier Deliveries Index has been above 50 percent, following eight months of faster delivery performance. A reading above 50 percent indicates slower deliveries.

The nine industries reporting slower supplier deliveries in August — listed in order — are: Printing & Related Support Activities; Fabricated Metal Products; Plastics & Rubber Products; Computer & Electronic Products; Paper Products; Machinery; Electrical Equipment, Appliances & Components; Transportation Equipment; and Chemical Products. The only industry reporting faster deliveries in August is Food, Beverage & Tobacco Products.

Inventories

Manufacturers' inventories contracted in August as the Inventories Index registered 34.4 percent, which is 0.9 percentage point higher than July's reading of 33.5 percent. An Inventories Index greater than 42.6 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

Three of the 18 manufacturing industries reported higher inventories in August: Nonmetallic Mineral Products; Furniture & Related Products; and Food, Beverage & Tobacco Products. The 11 industries that reported decreases in August — listed in order — are: Plastics & Rubber Products; Primary Metals; Wood Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Machinery; Paper Products; Fabricated Metal Products; Printing & Related Support Activities; Miscellaneous Manufacturing; and Chemical Products.