Inside Supply Management Magazine

ROB Roundup: August PMI®

September 04, 2018

From his usual spot on the floor of the Chicago Board of Trade, CNBC financial analyst Rick Santelli on Tuesday reported on the Manufacturing ISM® Report On Business®, released moments earlier. His sentiments on the expectations-beating August PMI® would be echoed throughout the morning.

“In my hand, I'm holding a 25-year historical record of the ISM manufacturing index,” Santelli told viewers. “Here's something interesting: There (is only one) number higher than the 61.3 (in) August; 61.5 (actually 61.4) was the high in 2004, I believe it was May. … It really is quite incredible.”

The August PMI® of 61.3 percent was a 3.2-percentage point gain from the previous month and belied current tariffs turbulence and a typical late-summer slowdown for factories, and many observers cited the data to tout the overall strength of the U.S. economy.


The supply management community has been bracing for the tariffs impact, but the Report On Business® continues to churn out positive data. (Once again, the overwhelming No. 1 issue among survey respondents’ comments was tariffs, at 49 percent.) Timothy R. Fiore, Chair of Institute for Supply Management®’s Manufacturing Business Survey Committee, calls the August numbers “strong” and figures that momentum could carry into September.

“We have a seasonal-adjustment factor for August to compensate for people taking time off, August tends to be a month where plants shut down,” Fiore says. “It's generally not a strong manufacturing month, so for (the) New Orders (Index) to come in at 65.1 and Production at 63.3 is surprising. It shows the economy is powering forward, despite the other issues we have.” (The seasonal adjustment added 2.5 percentage points to the New Orders Index, 1.1 to Production, 0.1 to Employment and 0.5 to Supplier Deliveries.)

However, Fiore has said for some time that September will be the first true telltale month. For some companies, that’s the beginning of a new fiscal year, third-quarter earnings reports loom, and it’s the heart of 2019 business-planning season.

Fiore cites potential red flags:

One of the biggest drivers of the PMI® in previous months has been the Supplier Deliveries Index, which in August was up 2.4 percentage points to 64.5; however, that figure can significantly change from month to month, he says.

Growth in the New Exports Orders and Imports indexes slowed, and Fiore says that could be due to tariffs concerns and some overseas economies softening. “That’s (a combination) that can make American products less competitive,” he says.

Among commodities, copper — its performance is considered an economic bellwether by many analysts — was down in price for the second consecutive month.

“We're still sitting in a position where the tariffs issue is not settled, and nobody knows where it's going,” Fiore says. “It's leading to supply managers and our (Business Survey Committee) panelists’ companies doing a lot of studying about changing their footprints to protect their export markets. It's concerning. Until that issue settles down, there is obvious risk to the forecast.”

The Report On Business® roundup:

Bloomberg: U.S. Factory Gauge Jumps to 14-Year High as Orders Pick Up. “The report shows factories remained solid in the third quarter and adds to signals that the nearly decade-old expansion will hold up well in the second half of 2018. The rise in the employment gauge also suggests manufacturers may record another month of strong payroll gains in Labor Department figures due Friday.”

Fox Business: U.S. Manufacturing at Highest Level in More Than 14 Years. “Recent tax cuts and strong consumer sentiment are positives for the U.S. economy, but manufacturers have expressed concerns about cost pressures due rising employee wages and supply chain inefficiencies. Additionally, survey participants voiced anxieties about how reciprocal tariffs will impact company revenue and current manufacturing locations.”

MarketWatch: American Manufacturers Growing at Fastest Pace in 14 Years, ISM Finds. “Growth in the U.S. economy exploded in the spring and the third quarter that got underway in July is also shaping up to be a good one. The economy is firing on almost all cylinders, though the persistent threat of a broader trade war continues to threaten recent gains.”

Reuters: U.S. Factory Activity Hits 14-Year High; Supply Constraints Rising. “Factories reported hiring more workers last month, with production increasing sharply. That bodes well for August’s employment report, which is scheduled to be released on Friday. Manufacturing payrolls have increased solidly this year.”

The Wall Street Journal: U.S. Factory Sector Clocks Strongest Growth in 14 Years. “Tuesday’s release surprised analysts who had expected a slowdown in the industry in light of rising trade tensions and a typically weaker month for factory activity. ‘Despite concerns over U.S. protectionist policies, manufacturing sentiment remains on a solid footing, supported in large part by firm domestic demand,’ said Pooja Sriram, U.S. economist at Barclays.”

The Non-Manufacturing ISM® Report On Business® will be released on Thursday. For the most up-to-date content on the PMI® and NMI® reports, use #ISMROB on Twitter.