August manufacturing activity picked up where July left off, according to the most recent edition of the Manufacturing Report on Business from the Institute of Supply Management (ISM).
The PMI, the index used by the ISM to measure manufacturing activity, came in at 55.7 in August, representing a 0.3 percent increase over July and now stands as the highest PMI level since June 2011's 55.8. What's more the August PMI is ahead of the 12-month average of 52.0 by 3.7 percent and has been over 50 in eight of the last nine months.
According to the report, overall economic activity has grown for 51 straight months, and prior to contraction in June 2012 economic activity in the manufacturing sector saw growth for 34 straight months.
New Orders, which are often referred to as the engine that drives manufacturing, were up 4.9 percent in August compared to July, which saw a 6.4 percent hike compared to June, which was the highest increase since April 2011, when it registered a 63.8 reading. Production saw a slight dip in August at 62.4, down 2.6 percent compared to July, following July's 11.6 percent gain over June's 53.4. July marked the highest Production reading since May 2004's 65.3, according to the ISM. Employment dropped 1.1 percent in August to 53.3.
"It is meaningful that we have had two straight months of strong numbers, which represent the high point for the year so far," said Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, in an interview. [Globally], China is up and the Eurozone is showing some growth, too, so things are consistent even though there some economic and political wildcards out there like situation in Syria. But if things remain relatively normal we could see some more strong manufacturing results in the coming months."
Addressing New Orders, Holcomb noted that 12 of the industries reporting into the ISM reported growth in August, which reflect a continuation of strength in housing and auto-related sectors, like wood products, furniture, electrical equipment and appliances, fabricated metal products, and transportation equipment.
He described the New Orders growth as a real good showing from a broad spectrum of industries.
On the Production side, even though the index mildly slipped, Holcomb said it remains in a very good place.
"Anything above 60 is remarkable and having that happen two months in a row with 15 of the 18 industries reporting growth and only one reporting contraction is notable," he said. "It is broad-based and follows from New Orders, coupled with the face that Backlog of Orders remains relatively level (up 1.5 percent to 46.5)."
Employment saw a 1.1 percent decrease to 53.3, but Holcomb observed that even with it being down it remains above the 50.5 benchmark, which the ISM maintains is consistent with an increase in the Bureau of Labor Statistics data on manufacturing employment.
While this type of employment growth won't translate into big numbers, Holcomb said it is positive and favorable and shows that companies need to increase staff to support the current levels of New Orders and Production.
Supplier Deliveries in August inched up 0.2 percent to 52.3, and Inventories registered a 0.5 percent gain to 47.5.
"We don't like to see Supplier Deliveries above 50 for three months in a row," said Holcomb. "This indicates suppliers are having a little bit of a hard time keeping up in providing raw materials. What they provide is inventory stock so these two go very much hand in hand. When Supplier Deliveries are slow, Inventories are going to trend down further than otherwise. Inventories being flat show that Production is strong and is burning off inventory relative to a couple of months ago and is a reflection of slower supplier deliveries as well. It is very much in a controlled range right now, and there are no concerns about that."
