After 35 consecutive months of growth, the Institute for Supply Management’s Purchasing Manager’s Index (PMI) contracted in August 2019, coming in at 49.1% (Readings above 50% indicate growth or expansion in the sector.) Last month, it was at 51.2
According to the ISM report:
“Comments from the panel reflect a notable decrease in business confidence. August saw the end of the PMI® expansion that spanned 35 months, with steady expansion softening over the last four months. Demand contracted, with the New Orders Index contracting, the Customers’ Inventories Index recovering slightly from prior months and the Backlog of Orders Index contracting for the fourth straight month. The New Export Orders Index contracted strongly and experienced the biggest loss among the subindexes.”
“Respondents expressed slightly more concern about U.S.-China trade turbulence, but trade remains the most significant issue, indicated by the strong contraction in new export orders. Respondents continued to note supply chain adjustments as a result of moving manufacturing from China. Overall, sentiment this month declined and reached its lowest level in 2019,” says The Institute’s Timothy R. Fiore.
This was below expectations which still had the index above 51%. While proclamations of “recession” are unavoidable in the media these days, we would urge caution about this single data point being a trend. IT HAS BEEN 35 MONTHS SINCE WE HAVE HAD A POINT BELOW 50!
Our latest PMPA Business Trends Report for July showed a slowing of growth in shipments by our shops (3MMA fell below the 12MMA) but the index itself recovered higher and all forward looking three month sentiment indicators turned strongly positive.
Industries reporting contraction to ISM include several of our markets most heavily served : Fabricated Metal Products; Transportation Equipment; Primary Metals; and Electrical Equipment, Appliances & Components.
Our bottom line: The shock should be that we have enjoyed 35 consecutive months of growth, not that we finally had one month of no-growth out of 36!
What do you think?
Chart courtesy of Calculated Risk blog