ISM Report: Manufacturing Activity Contracts for Sixth Consecutive Month in August

The ISM (Institute of Supply Management) Manufacturing PMI grew 0.7 points in August to 48.7%. Although this is the sixth consecutive month in contraction territory, the contraction was at a slower rate when compared to the July figure of 48.0%.

“Of the five subindexes that directly factor into the Manufacturing PMI, two (new orders and supplier deliveries) are in expansion territory, up from one in July,” says Susan Spence, chair of the ISM’s manufacturing business survey committee. Anything lower than 50% represents contraction.

The new orders index reading of 51.4% is 4.3 points higher than July’s figure and brings it into expansion territory after six months of contraction. The production index fell 3.6 points into contraction territory, registering 47.8%.

Its seventh month of contraction, the employment index registered 43.8% last month. “For every comment on hiring, there were four on reducing head count as companies continued to focus on accelerating staff reductions due to uncertain near- to mid-term demand. Layoffs and not filling open positions remain the main head-count management strategies,” Spence says.

Seven manufacturing industries reported growth in August:

• Textile mills
• Apparel, leather & allied products
• Nonmetallic mineral products
• Food, beverage & tobacco products
• Petroleum & coal products
• Miscellaneous manufacturing
• Primary metals

“Of the six largest manufacturing industries, two (food, beverage & tobacco products; and petroleum & coal products) expanded in August, compared to none in July,” Spence says.

In the comments of the survey, respondents report extreme concern about tariffs and economic instability.

“‘Made in the USA’ has become even more difficult due to tariffs on many components. Total price increases so far: 24%; that will only offset tariffs,” writes a respondent from the electrical equipment, appliances & components sector. “In two rounds of layoffs, we have let go of about 15% of our U.S. workforce. These are high-paying and high-skilled roles: engineers, marketing, design teams, finance, IT and operations. The administration wants manufacturing jobs in the U.S., but we are losing higher-skilled and higher-paying roles. With no stability in trade and economics, capital expenditures spending and hiring are frozen.”

A respondent in the transportation equipment sector writes, “Our backlog continues to shrink as customers continue to hold off on buying new equipment. This current environment is much worse than the Great Recession of 2008-09. There is absolutely no activity in the transportation equipment industry. This is 100% attributable to current tariff policy and the uncertainty it has created.”