TEMPE, Ariz — September 1, 2020 — Economic activity in the manufacturing sector grew in August, with the overall economy notching a fourth consecutive month of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee: “The August PMI® registered 56 percent, up 1.8 percentage points from the July reading of 54.2 percent. This figure indicates expansion in the overall economy for the fourth month in a row after a contraction in April, which ended a period of 131 consecutive months of growth. The New Orders Index registered 67.6 percent, an increase of 6.1 percentage points from the July reading of 61.5 percent. The Production Index registered 63.3 percent, up 1.2 percentage points compared to the July reading of 62.1 percent. The Backlog of Orders Index registered 54.6 percent, an increase of 2.8 percentage points compared to the July reading of 51.8 percent. The Employment Index registered 46.4 percent, an increase of 2.1 percentage points from the July reading of 44.3 percent. The Supplier Deliveries Index registered 58.2 percent, up 2.4 percentage points from the July figure of 55.8 percent.

“The Inventories Index registered 44.4 percent, 2.6 percentage points lower than the July reading of 47 percent. The Prices Index registered 59.5 percent, up 6.3 percentage points compared to the July reading of 53.2 percent. The New Export Orders Index registered 53.3 percent, an increase of 2.9 percentage points compared to the July reading of 50.4 percent. The Imports Index registered 55.6 percent, a 2.5-percentage point increase from the July reading of 53.1 percent.

“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. Survey Committee members reported that their companies and suppliers operated in reconfigured factories, with limited labor application due to safety restrictions. Panel sentiment was generally optimistic (1.4 positive comments for every cautious comment), though to a lesser degree compared to July. Demand expanded, with the (1) New Orders Index growing at very strong levels, supported by the New Export Orders Index expanding modestly; (2) Customers’ Inventories Index at its lowest figure since June 2010, a level considered a positive for future production, and (3) Backlog of Orders Index indicating growth for the second consecutive month. Consumption (measured by the Production and Employment indexes) contributed positively (a combined 3.3-percentage point increase) to the PMI® calculation, with industries continuing to expand output compared to July. Inputs — expressed as supplier deliveries, inventories and imports — were flat during the survey period, due to supplier delivery issues returning and import levels expanding moderately. Inventory levels contracted again due to strong production output and supplier delivery difficulties. Inputs likely were the biggest impediment to production growth and contributed negatively (a combined 0.2-percentage point decrease) to the PMI® calculation. (The Supplier Deliveries and Inventories indexes directly factor into the PMI®; the Imports Index does not.) Prices continued to expand and at higher rates, reflecting a shift to seller pricing power — a positive for new-order growth.

“Demand and consumption continued to drive expansion growth, with inputs representing near- and moderate-term supply chain difficulties. Among the six biggest manufacturing industries, Food, Beverage & Tobacco Products remains the best-performing sector, with Chemical Products; Computer & Electronic Products; and Fabricated Metal Products growing strongly. Transportation Equipment also expanded, but at a low rate. Petroleum & Coal Products sunk into contraction territory.

“Impacted by the current economic environment, many panelists’ companies are holding off on capital investments for the rest of 2020. In addition, (1) commercial aerospace equipment companies, (2) office furniture and commercial office building subsuppliers and (3) companies operating in the oil and gas markets — as well as their supporting supply bases — are and will continue to be impacted due to low demand. These companies represent approximately 20 percent of manufacturing output. This situation will likely continue at least through the end of the year,” says Fiore.

Of the 18 manufacturing industries, 15 reported growth in August, in the following order: Wood Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Textile Mills; Chemical Products; Computer & Electronic Products; Primary Metals; Fabricated Metal Products; Machinery; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Paper Products; and Transportation Equipment. The three industries reporting contraction in August are: Printing & Related Support Activities; Petroleum & Coal Products; and Furniture & Related Products.

WHAT RESPONDENTS ARE SAYING

“Watching COVID-19 situations in Mexico, Brazil, Philippines [and] Hong Kong. High rates of COVID-19 surging. Currently, lines of supply no longer impacted by COVID-19 related events.” (Computer & Electronic Products)

“Business is very good. Production cannot keep up with demand. Some upstream supply chains are starting to have issues with raw material and/or transportation availability.” (Chemical Products)

“Airline industry continues to be under great pressure.” (Transportation Equipment)

“Current sales to domestic markets are substantially stronger than forecasted. We expected a recession, but it did not turn out that way. Retail and trade customer markets are very strong and driving shortages in raw material suppliers, increasing supplier orders.” (Fabricated Metal Products)

“Homebuilder business continues to be robust, with month-over-month gains continuing since May. Business remains favorable and will only be held back by supply issues across the entire industry.” (Wood Products)

“We are seeing solid month-over-month order improvement in all manufacturing sectors such as electrical, auto and industrial goods. Looking to add a few factory operators.” (Plastics & Rubber Products)

“Rolling production forecasts are increasing each week compared to prior forecast.” (Primary Metals)

“[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.” (Food, Beverage & Tobacco Products)

“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. All trends continuing from the first quarter of fiscal year 2017.” (Electrical Equipment, Appliances & Components)

“Capital equipment new orders have slowed again. Quoting is active. Many customers waiting for the fourth quarter to make any commitments.” (Machinery)

“We are starting to see parts of our business rebound in August, while other parts remained weak. Some of our export business has come back for the first time since the start of COVID-19; however, domestic portfolios remain mixed.” (Paper Products)

Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.

*Number of months moving in current direction.

Commodities Reported Up/Down In Price And In Short Supply

Commodities Up in Price
Aluminum (3); Copper (3); Crude Oil (4); Freight; High-Density Polyethylene (2); Lumber (2); Natural Gas; Packaging Materials; Polyethylene; Polypropylene (2); Precious Metals (2); Propylene; Steel*; Steel — Scrap; and Steel — Stainless.

Commodities Down in Price
Steel*; and Steel — Hot Rolled (2).

Commodities in Short Supply
Aluminum Cans; Electronic Components; Freight; Lumber; and Personal Protective Equipment (PPE) — Gloves (6).

Note: The number of consecutive months the commodity is listed is indicated after each item.

*Indicates both up and down in price.

August 2020 Manufacturing Index Summaries

PMI®

Manufacturing grew in August, as the PMI registered 56 percent, 1.8 percentage points higher than the July reading of 54.2 percent. “The PMI signaled a continued rebuilding of economic activity in August and reached its highest level of expansion since November 2018, when the index registered 58.8 percent. Five of the big six industry sectors expanded. The New Orders and Production indexes continued at strong expansion levels. The Supplier Deliveries Index now better reflects supplier’s difficulty in maintaining delivery rates due to factory labor safety issues and transportation difficulties. Eight of the 10 subindexes were positive for the period,” says Fiore. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI above 42.8 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the August PMI indicates the overall economy grew in August for the fourth consecutive month following contraction in April. “The past relationship between the PMI and the overall economy indicates that the PMI for August (56 percent) corresponds to a 3.9-percent increase in real gross domestic product (GDP) on an annualized basis,” Fiore said.

The Last 12 Months

New Orders

ISM’s New Orders Index registered 67.6 percent in August, an increase of 6.1 percentage points compared to the 61.5 percent reported in July. This indicates that new orders grew for the third consecutive month. “All of the top six industry sectors (Computer & Electronic Products; Chemical Products; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Fabricated Metal Products; and Transportation Equipment) expanded. Demand improved in August, as demonstrated by 15 industry sectors expanding and only one contracting. The index achieved its highest level of performance since January 2004 (70.6 percent),” Fiore said. A New Orders Index above 52.5 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

Of the 18 manufacturing industries, the 15 that reported growth in new orders in August — in the following order — are: Primary Metals; Plastics & Rubber Products; Wood Products; Computer & Electronic Products; Chemical Products; Nonmetallic Mineral Products; Machinery; Paper Products; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Fabricated Metal Products; Furniture & Related Products; Miscellaneous Manufacturing; Transportation Equipment; and Electrical Equipment, Appliances & Components. The only industry reporting a decline in new orders in August was Printing & Related Support Activities.

Production

The Production Index registered 63.3 percent in August, up 1.2 percentage points from 62.1 percent in July, indicating growth for the third consecutive month. “All of the top six industries expanded strongly, an improvement from July. The index achieved its highest level of performance since January 2018, when it registered 64.2 percent,” says Fiore. An index above 51.7 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The 15 industries reporting growth in production during the month of August — listed in order — are: Wood Products; Primary Metals; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Transportation Equipment; Textile Mills; Machinery; Food, Beverage & Tobacco Products; Fabricated Metal Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Computer & Electronic Products; and Paper Products. The only industry reporting decreased production in August was Printing & Related Support Activities.

Employment

ISM’s Employment Index registered 46.4 percent in August, 2.1 percentage points higher than the July reading of 44.3 percent. “This is the 13th consecutive month of employment contraction, at a slower rate compared to July. This marks the fourth consecutive month of improvement since the index’s low of 27.5 percent registered in April. Three of the six big industry sectors experienced expansion, as factories were able to maintain significant gains in output with a reduced labor pool. Long-term labor market growth remains uncertain, but strong new-order levels and an expanding backlog signify potential strength for the rest of the third quarter. Survey comments indicate that more panelists’ companies are hiring or attempting to hire compared to actively and passively reducing their labor forces,” says Fiore. An Employment Index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, the eight industries to report employment growth in August — in the following order — are: Textile Mills; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Computer & Electronic Products; Fabricated Metal Products; and Miscellaneous Manufacturing. The seven industries reporting a decrease in employment in August, in the following order, are: Printing & Related Support Activities; Petroleum & Coal Products; Primary Metals; Furniture & Related Products; Transportation Equipment; Paper Products; and Chemical Products.

Supplier Deliveries†


The delivery performance of suppliers to manufacturing organizations was slower in August, as the Supplier Deliveries Index registered 58.2 percent. This is 2.4 percentage points higher than the 55.8 percent reported in July. “Suppliers continue to struggle to deliver, slowing deliveries at a faster rate compared to July. Plant interruptions, transportation challenges and continuing difficulties in supplier labor markets are still significant factors. The Supplier Deliveries Index reflects the difficulties suppliers will continue to experience due to COVID-19 impacts. These issues are not expected to diminish in the near future and, at this time, represent the biggest hurdle to production output and inventory growth,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

Eleven of 18 industries reported slower supplier deliveries in August, listed in the following order: Printing & Related Support Activities; Wood Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Chemical Products; Textile Mills; Computer & Electronic Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Machinery; and Miscellaneous Manufacturing. The three industries reporting faster supplier deliveries in August are: Furniture & Related Products; Paper Products; and Transportation Equipment.

Inventories

The Inventories Index registered 44.4 percent in August, 2.6 percentage points lower than the 47 percent reported for July. Inventories contracted for the second straight month after two consecutive months of expansion. This is the lowest reading for the Inventories Index since January 2014 (43.9 percent). “Inventory levels were impacted by increases in production output and restrained by continuing supplier difficulties as noted above,” says Fiore. An Inventories Index greater than 44.3 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The two industries reporting higher inventories in August are: Apparel, Leather & Allied Products; and Plastics & Rubber Products. The nine industries reporting a decrease in inventories in August — listed in order — are: Nonmetallic Mineral Products; Printing & Related Support Activities; Wood Products; Fabricated Metal Products; Transportation Equipment; Petroleum & Coal Products; Primary Metals; Electrical Equipment, Appliances & Components; and Machinery. Seven industries reported no change in inventories in August compared to July.

Customers’ Inventories†

ISM’s Customers’ Inventories Index registered 38.1 percent in August, 3.5 percentage points lower than the 41.6 percent reported for July, indicating that customers’ inventory levels were considered too low. “Customers’ inventories are too low for the 47th consecutive month and moved further into ‘too low’ territory in August, a positive for future production growth. It’s been more than a decade (a reading of 35.8 percent in June 2010) since the Customers’ Inventories index has been at this level,” Fiore said.

Of the 18 industries, the two reporting higher customers’ inventories in August are: Nonmetallic Mineral Products; and Miscellaneous Manufacturing. The 14 industries reporting customers’ inventories as too low during August — listed in order — are: Apparel, Leather & Allied Products; Wood Products; Paper Products; Fabricated Metal Products; Textile Mills; Plastics & Rubber Products; Furniture & Related Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Chemical Products; Food, Beverage & Tobacco Products; Transportation Equipment; and Primary Metals.

Prices†

The ISM Prices Index registered 59.5 percent, a jump of 6.3 percentage points compared the July reading of 53.2 percent, indicating raw materials prices increased for the third consecutive month. “Price increases were driven primarily by plastics, lumber, aluminum, copper, some steel products, transportation expenses, precious metals and petroleum products. Price growth reflects a power shift toward sellers, as increased costs to produce input materials are being passed on to panelists’ companies,” Fiore said. A Prices Index above 52.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

The 17 industries reporting paying increased prices for raw materials in August — listed in order — are: Textile Mills; Apparel, Leather & Allied Products; Plastics & Rubber Products; Printing & Related Support Activities; Wood Products; Primary Metals; Chemical Products; Petroleum & Coal Products; Furniture & Related Products; Fabricated Metal Products; Computer & Electronic Products; Nonmetallic Mineral Products; Machinery; Miscellaneous Manufacturing; Transportation Equipment; Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products. No industry reported a decrease in input prices.

Backlog of Orders†

ISM’s Backlog of Orders Index registered 54.6 percent in August, a 2.8-percentage point increase compared to the 51.8 percent reported in July, indicating order backlogs expanded for the second consecutive month after four straight months of contraction. “Backlogs expanded at faster rates in August, indicating that new-order intakes were sufficient to fully offset production outputs. Four of the six big industry sectors’ backlogs expanded, an improvement from July. The index achieved its highest level of expansion since November 2018 (56.4 percent),” Fiore said.

The nine industries reporting growth in order backlogs in August, in the following order, are: Wood Products; Primary Metals; Fabricated Metal Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Chemical Products; and Machinery. In August, six industries — in the following order — reported lower backlogs: Textile Mills; Printing & Related Support Activities; Miscellaneous Manufacturing; Paper Products; Furniture & Related Products; and Transportation Equipment.

New Export Orders†

ISM’s New Export Orders Index registered 53.3 percent in August, up 2.9 percentage points compared to the July reading of 50.4 percent. “The New Export Orders Index grew for the second consecutive month at a faster rate and reached its highest level since January (53.3 percent). With four of the six big industry sectors expanding, new export orders were a positive factor to the growth in new orders,” says Fiore.

The nine industries reporting growth in new export orders in August — in the following order — are: Furniture & Related Products; Textile Mills; Miscellaneous Manufacturing; Plastics & Rubber Products; Chemical Products; Food, Beverage & Tobacco Products; Transportation Equipment; Computer & Electronic Products; and Machinery. The two industries reporting a decrease in new export orders in August are: Nonmetallic Mineral Products; and Fabricated Metal Products. Seven industries reported no change in new export orders in August compared to July.

Imports†

ISM’s Imports Index registered 55.6 percent in August, up 2.5 percentage points compared to the 53.1 percent reported for July. “Imports expanded for the second consecutive month, reflecting increased U.S. factory demand. The index reached its highest level of expansion since June 2018, when it registered 59 percent,” Fiore said.

The 14 industries reporting growth in imports in August — in the following order — are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Wood Products; Textile Mills; Plastics & Rubber Products; Miscellaneous Manufacturing; Paper Products; Transportation Equipment; Machinery; Chemical Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Computer & Electronic Products. The only industry reporting a decrease in imports in August was Primary Metals.

†The Supplier Deliveries, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders and Imports indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy

Average commitment lead time for Capital Expenditures was unchanged in August at 136 days. Average lead time for Production Materials was unchanged in August at 66 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies increased in August by five days to 40 days.

Posted September 1, 2020

Source: Institute for Supply Management® (ISM®)