After a brief respite in July, the Institute for Supply Management (ISM) manufacturing index rose 3.2 percentage points 61.3 in August. This was above market expectations for a small decline to 57.7 from 58.1 in July.
All of the main subcomponents of the headline index rose in August. The largest moves were recorded in new orders (+4.9 to 65.1), and production (+4.8 to 63.3). Employment rose 2 p.p. to 58.5 in the month.
Trade-related subcomponents expanded at a slower pace in August. Export orders were down 0.1 p.p. to 55.2 while imports fell -0.8 to 53.9. The pace of growth in both export and import orders has weakened considerably since steel and aluminum tariffs were announced by the U.S. administration this past March.
As an indicator of things to come, the spread between new orders and inventories widened to 9.7 from 6.9 previously, a sign that the current expansion is likely to continue in the weeks ahead.
Of the 18 manufacturing industries reporting, 16 recorded growth in August. Wood products and primary metals industries declined in the month.
Key Implications
The U.S. manufacturing sector picked up steam in August, with few signs of slowing down. However, survey respondents remain concerned about tariffs, and cite shortages of labor, truckers, and electrical components. Price pressures appear to have levelled off somewhat, but further price increases are still anticipated in some industries.
Tariffs continue to play havoc with supply chains. With tariffs on an additional $200 bn in annual Chinese imports expected to be announced by the U.S. administration later this week, price pressures and component shortages are not likely to ease anytime soon. Thus far U.S. manufacturers have been able to shoulder the additional burden the tariffs have imposed on them, but the escalating trade spat with China and waning global demand may yet test the durability of the current expansion.
