US purchasing managers report strong growth in manufacturing production and new orders according to the August PMI survey from the Institute for Suppy Management

U.S. purchasing managers report strong growth in manufacturing production and new orders, according to the August PMI survey from the Institute for Suppy Management.

New Orders Surge in ISM's August Manufacturing Index

"Strongest month in years. Business is solid...Awesome!” said one executive at a primary metals manufacturer.

If not everyone was quite so upbeat, still there was plenty of good news in the August PMI Index report from the Institute for Supply Management, continuing a string of largely positive reports from the U.S. manufacturing industry.

Manufacturing supply chain executives reported the highest new orders activity for factory goods since April 2004 in August. ISM reported its new orders index rose to 66.7%, an increase of 3.3 percentage points from the 63.4% reading in July. This was the 15th consecutive month of growth in new orders.

Overall, the August PMI gained 1.9 percentage points to 59% from the July reading of 57.1%. That was the highest reading for the index since March 2011. Readings over 50% indicate growth in the manufacturing sector. An electrical equipment purchasing manager told ISM:

"Overall business is improving. Order backlog is increasing. Quotes are increasing. Much more positive outlook in our sector."

Of the 18 manufacturing sectors included in the ISM report, 17 reported growth in August. The lone outlier was textile mills.

Other manufacturing measures also improved in ISM’s August report. The production index registered 64.5%, a gain of 3.3% from July.

The employment index showed its 14th month of consecutive growth, registering 58.1%, just below the July reading of 58.2%.

Inventories of raw materials gained 3.5 percentage points as the August index hit 52%, up 3.5% from the July reading of 48.5%.

Manufacturing experts found little that was negative in the report. Daniel J. Meckstroth, chief economist for the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation, noted:

“The only downside in the report is that the improvement in imports was more than that for exports, an unfortunate result of stronger growth in the United States economy than for many of our trading partners. U.S. manufacturing production posted solid growth every month since January this year. The growth is driven by pent-up demand in consumer durables (particularly motor vehicles and housing-related durables, business equipment, and transportation and energy infrastructure). MAPI forecasts a 3.4% increase in manufacturing production this year and 4% growth in 2015—both well above the growth rate of the general economy.”

The August PMI reported followed a strong report on industrial production in July from the Federal Reserve. Output rose 1.0%, mainly on growth in the auto sector.

The durable goods report in July showed very strong growth, though boosted in particular by aircraft orders. Boeing provided an orders bonanza that sent durable goods soaring 22.6% to $300.1 billion for the month. However, other durable goods production fell 0.8% in July.

In a post on NAM’s Shopfloor blog, Chief Economist Chad Moutray noted the growing strength of manufacturing reflected in the ISM report:

“Overall, this report shows that manufacturers are seeing strong growth more recently in demand and output, which is definitely positive given the disappointing start to the year. Manufacturing leaders are mostly positive about the second half of 2014, even as they are keenly aware of possible risks on the horizon. This includes geopolitical events, a cautious consumer and labor shortages, among other concerns. Still, it is nice to see the sector hitting on all cylinders, and the outlook for strong growth over the coming months remains positive.”

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