U.S. Factories Kept Humming in August

factory output
factory output

Retail sales may be tepid and the housing sector a lingering concern, but the nation's factory sector isn't ready to concede economic defeat yet. The Institute for Supply Management's manufacturing index unexpectedly rose 1.8 points in August to 56.3. A Bloomberg survey had expected the measure to dip to 53 from 55.5 in July. Readings above 50 indicate an expansion; under 50, a contraction. The index was at 56.2 in June, 59.7 in May, and 60.4 in April.

August's ISM reading also marked the 13th consecutive month that manufacturing activity expanded. Equally significant, three key index components -- employment, production and prices paid -- rose in August, and a fourth, new orders, continued to signal an expansion.

More Demand Is in the Pipeline

The employment component increased to 60.4 in August from 58.6 in July -- a reading that suggests the recent trend of job growth in the nation's manufacturing sector continued this summer. The production component rose to 59.9 from 57. The closely watched new orders component declined, but just slightly, to 53.1 from 53.5 in July. It remained above the key 50 expansion/contraction line. That suggests a continued increase in industrial demand is in the pipeline.

The prices-paid component jumped to 61.5 from 57.5 in July. That provides further evidence of firming prices -- an encouraging development, given economists' growing concerns about deflation.

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Norbert J. Ore, chairman of the ISM's Manufacturing Business Survey Committee, said reports of an end to the factory sector's expansion may be premature.

"Manufacturing activity continued at a very positive rate in August as the PMI rose slightly when compared to July," Ore said, in a statement. "In terms of month-over-month improvement, the production and employment [component] indexes experienced the greatest gains, while new orders continued to grow but at a slightly slower rate."

Respondents' comments in the August survey confirmed an ongoing, but uneven, manufacturing expansion.

  • "Still experiencing intermittent delays in electronic components due to capacity and raw materials" (electrical equipment, appliances and components sector).

  • "International sales are especially strong. Domestic business is solid" (chemical products sector).

  • "Orders and business still strong" (primary metals sector).

  • "Order rate has slowed some. Supplier capacity in general seems to be improved" (machinery sector).

August's ISM manufacturing report represents another encouraging performance by the U.S. factory sector. The nation's industrial output continues to increase, despite considerable slowing in other sectors. Aside from the top-line rise, the two most important takeaways from the August factory report are the employment component, which continued to signal demand for workers, and the maintenance of the new-orders component above 50 -- which suggests that demand will continue to increase in the immediate period ahead.

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