ISM: Manufacturing Growth Slows in August
U.S. manufacturing grew for an eighth straight month in August, but the pace slowed. The ISM's PMI fell to 54.6% as new orders and backlogs declined.
U.S. manufacturing activity expanded in August for the eighth month in a row, but the pace of growth slowed, with the ISM's PMI falling to 54.6%. The Institute for Supply Management's Purchasing Managers' Index registered 54.6%, a one percentage point drop from July's figure.
A reading above 50% indicates expansion. The overall economy grew for a 22nd consecutive month. Susan Spence, chair of ISM's Manufacturing Business Survey Committee, noted that despite the expansion trend, concerns over geopolitical conflict and tariffs are mounting.
Key Index Readings
The August report showed mixed results across key sub-indexes. New orders and backlogs declined, while supplier deliveries slowed further.
| Index | August Reading | Change from July |
|---|---|---|
| PMI | 54.6% | -1.0 ppt |
| New Orders | 53.7% | -3.0 ppt |
| Production | 58.3% | -0.2 ppt |
| Prices | 71.1% | 0.0 ppt |
| Backlog of Orders | 51.8% | -3.2 ppt |
| Employment | 51.2% | -1.6 ppt |
| Supplier Deliveries | 59.3% | +0.4 ppt |
| Inventories | 50.6% | -0.6 ppt |
| Customers' Inventories | 42.8% | +2.1 ppt |
| New Export Orders | 53.2% | +0.2 ppt |
| Imports | 52.5% | -3.2 ppt |
Demand and Supply Chain Pressures
Three of ISM's four demand indicators-New Orders, Backlog of Orders, and New Export Orders-remained in expansion territory. However, the New Orders and Backlog indexes fell significantly. The Customers' Inventories Index remained in 'too low' territory, which is typically a positive signal for future production.
Supplier deliveries slowed for the ninth consecutive month. A reading above 50% for this index indicates slower performance. Of the five subindexes that make up the PMI, the only one that grew faster than last month was Supplier Deliveries, indicating a continuing slowdown of the supply chain, Spence said in a news release.
Industry Sentiment and Concerns
Sentiment among purchasing managers was more negative than positive in August. According to Spence, 42% of comments were positive and 58% were negative. Pricing volatility was cited in 57% of negative comments. Increasing lead times were mentioned in 46%, the Iran war in 30%, and tariffs in 29%.
Five of the six largest manufacturing industries expanded: transportation equipment; petroleum and coal products; machinery; computer and electronic products; and food, beverage and tobacco products.
Respondents to the ISM survey cited numerous headwinds. A chemical products executive said the economy is annoying; it is getting in the way of otherwise good business, citing escalating prices from tariffs and conflict in the Strait of Hormuz and fearing inflation would hurt customer spending power.
A respondent from the computer and electronic products industry described a supply chain crisis, saying the situation is even bigger and more complicated than during and post COVID-19, attributing it to AI infrastructure demand and global market uncertainties from Middle East conflict and trade rules.
The steel industry faces new pressure from 50% tariffs imposed by Canada, mirroring recent U.S. tariffs. Spence expressed less optimism about the August data, noting it was the first month with over a three-point drop in three important areas. She said she is starting to see warning signs.
