The mixed message in the ISM data of growing overall economy and contracting manufacturing isn’t difficult to fathom- slowdown in manufacturing as orders and demand dry up as global economic uncertainty continues to reduce confidence.


Global economic uncertainty reducing growth and demand for manufactured goods.

Economic activity in the manufacturing sector contracted in August for the third time since July 2009; however, the overall economy grew for the 39th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.

The PMI™ registered 49.6 percent, a decrease of 0.2 percentage point from July’s reading of 49.8 percent, indicating contraction in the manufacturing sector for the third consecutive month.

(This is also the lowest reading for the PMI™ since July 2009.)

Manufacturing contracted in August as the PMI™ registered 49.6 percent, a decrease of 0.2 percentage point when compared to July’s reading of 49.8 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

What this really means: ” A PMI™ in excess of 42.6 percent, over a period of time, generally indicates an expansion of the overall economy.”

Therefore, the August PMI™ indicates growth for the 39th consecutive month in the overall economy, but indicates contraction in the manufacturing sector for the third time since July 2009, when the PMI™ registered 49.2 percent.

Other indicators:

  • New Orders Index registered 47.1 percent, a decrease of 0.9 percentage point from July, indicating contraction in new orders for the third consecutive month.
  • Production Index registered 47.2 percent, a decrease of 4.1 percentage points and indicating contraction in production for the first time since May 2009.
  • Employment Index remained in growth territory at 51.6 percent, but registered its lowest reading since November 2009 when the Employment Index registered 51 percent.
  • Prices Index increased 14.5 percentage points from its July reading to 54 percent. 

The mixed message in these data isn’t difficult to fathom- slowdown in manufacturing as orders and demand dry up as global economic uncertainty continues to reduce confidence.

See the full ISM report for August here

Yellow Flag

The Institute for Supply Management’s (ISM)  “Purchasing Managers’ Index (PMI)”  plunged 3.8  points for June, to a level of 49.7.  According to ISM,  a PMI below “50” is consistent with a contraction of manufacturing.

Our respondents are still showing strong order books, with many shops only taking off one day for the holiday this week.

With only one day off this week due to order volume and backlog, finding time for grilling will be a scheduling challenge too!

While the June  PMI of 49.7  shows contraction in manufacturing, it nevertheless is  consistent with an increase of real GDP, according to the ISM. About 2.4% as I read the release.

History lesson: This is the first instance of the PMI coming in below 50 since July 2009- the end of the “Great Recession;” it had been on a 34 consecutive month run indicating growth in manufacturing.

Circumstances today around the world make it easy to use this indicator as a sign that bad days are coming here. Our data and conversations with shops indicate that that would be a great way to miss the opportunities that are available right now.

Why let the talking heads scare you out of today’s opportunity to employ your productive assets and employees?

This is an important indicator, but it does not sound  the death knell for our very strong manufacturing business es at this time.

Our business trends report for June will be out in two weeks. We’ll revisit this then.