- The manufacturing ISM survey posted a modest gain in August, rising to 59.9 from 59.5 in July. A reading above 50 indicates expansion. Manufacturing is expanding, but the pace of growth has slowed.
- The New Orders, Production, and Inventories component indices supported the overall activity rise.
- The Manufacturing ISM survey’s Employment and Deliveries components fell in August, in line with ongoing supply chain disruption and labor market shortage concerns.
- Commodity Prices continued to trend downward according to the Manufacturing ISM survey’s results in August, indicating that price pressure concerns are resolving with time should not present a hurdle to manufacturing’s recovery into the coming year.
The ISM manufacturing index rose slightly from July into August, after enduring two consecutive monthly declines in June and July and a sharp fall from all-time highs in March. Expansion in manufacturing continues, as – at 59.9 – the survey’s reading is still well above 50 which indicates that more manufacturers are signaling expansion than are experiencing a contractionary environment. Consumer demand will continue to provide a platform for manufacturing’s recovery from the pandemic-induced recession, but scarcity of intermediate goods, components, and labor resources will act as a brake on the pace of that growth.
The Inventories component of the ISM manufacturing survey bounced back above 50 for August (54.2, from 48.9 in July), and has been volatile around that breakeven level since late 2020. Inventory management presents a challenge for manufacturers now and through the coming months as supply chain disruption remain a source of uncertainty, while consumer demand expectations must be taken with a grain of salt given COVID-19 infection concerns and their impact on consumer confidence. Even as supply chain disruptions work toward resolution, that uncertainty will likely prevent full-speed advances as caution among manufacturers lingers.
ISM manufacturing survey responses regarding Commodity Prices fell substantially in July to 79.4, from an all-time high of 92.1 in June and 85.7 in July. This is the lowest result for this component of the ISM manufacturing survey since December 2020 (77.6). Inflation concerns remain a talking point thanks to the manufacturing base’s inability to ramp up to meet demand. However, an emerging downward trend in commodity prices at the primary stage of production reinforces the view that inflation may well be “transient,” as Federal Reserve officials continue to insist.
The Employment component of the ISM manufacturing index sat below the expansionary level of 50 in August, falling to 49.0 from 52.9 in July. The nation’s labor market is currently in flux, and confidence among manufacturers as to their ability to hire and retain workers will be subject to their response to the evolving wage growth environment. Manufacturers that are willing and able to boost wages as an incentive to retain workers will be best positioned to ride the wave of expansion once supply chain disruptions are corrected. Workers will have leverage regarding wage demands throughout the near-term horizon, provided by broad trends in the economic and social landscape as well as consumer price inflation driving cost of living arguments. This reality will put manufacturers’ bottom lines under pressure, but the pent-up demand they are fighting to service will also keep topline optimism high regarding sustained revenue potential.
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