ISM Manufacturing Index:  The Institute of Supply Management’s Index moved down 2.1 points on month, (m/m) to 49.1 for August 2019. This is the first time the index has been lower than 50 since August 2016.  Before this month, the index had been greater than 50, (>50 = expansion) for thirty-five consecutive months. The new orders sub-index scored a 47.2.  Overall, the ISM manufacturing index is weakening.

The ISM manufacturing index is based on surveys of 400 purchasing managers in 20 industries. The survey is a diffusion index calculated as a percent of responses. A value of 50 is neutral, while less than 50 is contracting and greater than 50 is expansionary.

ism-fig1Figure 1 breaks down the detail of the composite index and sub-indexes. The composite index score for August is 49.1. One year ago, the composite index was a strong at 61.3.

Figure 2 ism-fig2shows the history of the ISM manufacturing index from 2003 to present.  On a 3 month moving average, (3MMA) basis, the index posted a value 50.67, down 1.9% 3 months year on year (y/y).  When examined on a 12MMA y/y comparison, the index decreased by 1.8% y/y.

Breaking down the sub-indexes for the monthly numbers: Inventory, (not seasonally adjusted) sub-index moved-up 0.4 points m/m to 49.9 in August. The production sub-index decreased by 1.3 points to 49.5. The employment index moved up down by 4.3 of a point to 47.4. The order backlogs which also increased by 3.2 points to 46.3.

Of the 18 manufacturing industries, nine reported growth in August, in the following order: Textile Mills; Furniture & Related Products; Food, Beverage & Tobacco Products; Wood Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Machinery; Miscellaneous Manufacturing; and Chemical Products. The seven industries reporting contraction in August — in the following order — are: Apparel, Leather & Allied Products; Fabricated Metal Products; Transportation Equipment; Primary Metals; Plastics & Rubber Products; Paper Products; and Electrical Equipment, Appliances & Components.

An Institute for Supply Management respondent stated, “Slightly lower rate of incoming orders may be seasonal or a sign of a general slowdown. Monitoring closely.”  (Fabricated Metal Products)

At Gerdau we closely monitor the ISM manufacturing index since it is an excellent barometer of the present strength as well as a window on the likely short-run future of US manufacturing.