PMI® at 49.4%; August Manufacturing ISM® Report On Business®; New Orders, Production and Employment Contracting; Inventories Contracting; Supplier Deliveries Slowing

TEMPE, Ariz., Sept. 1, 2016 /PRNewswire/ -- Economic activity in the manufacturing sector contracted in August following five consecutive months of expansion, while the overall economy grew for the 87th consecutive month, say the nation's supply executives in the latest Manufacturing ISM^® Report On Business^®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management^® (ISM^®) Manufacturing Business Survey Committee. "The August PMI^® registered 49.4 percent, a decrease of 3.2 percentage points from the July reading of 52.6 percent. The New Orders Index registered 49.1 percent, a decrease of 7.8 percentage points from the July reading of 56.9 percent. The Production Index registered 49.6 percent, 5.8 percentage points lower than the July reading of 55.4 percent. The Employment Index registered 48.3 percent, a decrease of 1.1 percentage points from the July reading of 49.4 percent. Inventories of raw materials registered 49 percent, a decrease of 0.5 percentage point from the July reading of 49.5 percent. The Prices Index registered 53 percent, a decrease of 2 percentage points from the July reading of 55 percent, indicating higher raw materials prices for the sixth consecutive month. Manufacturing contracted in August for the first time since February of this year, as only six of our 18 industries reported an increase in new orders in August (down from 12 in July), and only eight of our 18 industries reported an increase in production in August (down from nine in July)."

Of the 18 manufacturing industries, six are reporting growth in August in the following order: Printing & Related Support Activities; Nonmetallic Mineral Products; Computer & Electronic Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Chemical Products. The 11 industries reporting contraction in August — listed in order — are: Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Plastics & Rubber Products; Furniture & Related Products; Transportation Equipment; Machinery; Textile Mills; Paper Products; Petroleum & Coal Products; Primary Metals; and Fabricated Metal Products.

WHAT RESPONDENTS ARE SAYING …

• "We have been getting lots of inquiries, but not a lot of sales order placements." (Chemical Products)
• "Business was flat this month overall." (Computer & Electronic Products)
• "Continued strong market demand for our products related to construction." (Nonmetallic Mineral Products)
• "Commercial construction continues to be strong, and therefore our business is very good." (Fabricated Metal Products)
• "New product distribution is increasing." (Food, Beverage & Tobacco Products)
• "This past month, sales increased over the trend from the first half of the year. There seems to be a general, albeit slight, loosening of capital purse strings." (Machinery)
• "Medical device is still strong." (Miscellaneous Manufacturing)
• "Business conditions are generally flat." (Transportation Equipment)
• "Hard to find production associates. Unemployment in the area is around 4 percent. Can't get enough employees [which] leads to lots of overtime." (Plastics & Rubber Products)
• "Oil prices continue to seek a 'footing'; rig count slowly increasing." (Petroleum & Coal Products)

Manufacturing ISM^® Report On Business^® data is seasonally adjusted for the New Orders, Production, Employment and Supplier Deliveries Indexes.
*Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY

Commodities Up in Price
Caustic Soda; Copper (2); Gold (2); Nickel; Plastic Resins; Propylene; Stainless Steel (5); Steel* (8); and Titanium Dioxide.

Commodities Down in Price
Corn (2); Corrugate (2); Diesel; Scrap Steel; Steel* (2); Steel – Cold Rolled; and Steel – Hot Rolled.

Commodities in Short Supply
None (5).

Note: The number of consecutive months the commodity is listed is indicated after each item.
*Reported as both up and down in price.

AUGUST 2016 MANUFACTURING INDEX SUMMARIES

PMI^®
Manufacturing contracted in August as the PMI^® registered 49.4 percent, a decrease of 3.2 percentage points from the July reading of 52.6 percent, indicating contraction in manufacturing for the first time since February 2016 when the PMI registered 49.5. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI^® above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the August PMI^® indicates growth for the 87th consecutive month in the overall economy, while indicating contraction in the manufacturing sector for the first time since February of this year. Holcomb stated, "The past relationship between the PMI^® and the overall economy indicates that the average PMI^® for January through August (50.9 percent) corresponds to a 2.4 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI^® for August (49.4 percent) is annualized, it corresponds to a 2 percent increase in real GDP annually."

THE LAST 12 MONTHS

New Orders
ISM^®'s New Orders Index registered 49.1 percent in August, which is a decrease of 7.8 percentage points when compared to the 56.9 percent reported for July, indicating contraction in new orders for first time since December 2015 when the New Orders Index registered 48.8 percent. A New Orders Index above 52.2 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

The six industries reporting growth in new orders in August — listed in order — are: Nonmetallic Mineral Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Chemical Products; and Fabricated Metal Products. The nine industries reporting a decrease in new orders during August — listed in order — are: Wood Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Transportation Equipment; Plastics & Rubber Products; Machinery; Primary Metals; and Paper Products.

Production
ISM^®'s Production Index registered 49.6 percent in August, which is a decrease of 5.8 percentage points when compared to the 55.4 percent reported for July, indicating contraction in production in August and its lowest reading since August 2012 when the Production Index registered 49.5. An index above 51.3 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

The eight industries reporting growth in production during the month of August — listed in order — are: Printing & Related Support Activities; Chemical Products; Primary Metals; Computer & Electronic Products; Fabricated Metal Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Nonmetallic Mineral Products. The eight industries reporting a decrease in production during August — listed in order — are: Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Transportation Equipment; Furniture & Related Products; Machinery; Paper Products; and Textile Mills.

Employment
ISM^®'s Employment Index registered 48.3 percent in August, a decrease of 1.1 percentage points when compared to the July reading of 49.4 percent, indicating contraction in employment in August for the second consecutive month. An Employment Index above 50.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, the five industries reporting employment growth in August are: Printing & Related Support Activities; Paper Products; Primary Metals; Computer & Electronic Products; and Nonmetallic Mineral Products. The nine industries reporting a decrease in employment in August — listed in order — are: Apparel, Leather & Allied Products; Transportation Equipment; Plastics & Rubber Products; Furniture & Related Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Machinery; Chemical Products; and Textile Mills.

Supplier Deliveries
The delivery performance of suppliers to manufacturing organizations was slower in August as the Supplier Deliveries Index registered 50.9 percent, which is 0.9 percentage point lower than the 51.8 percent reported for July. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The six industries reporting slower supplier deliveries in August — listed in order — are: Nonmetallic Mineral Products; Transportation Equipment; Miscellaneous Manufacturing; Machinery; Food, Beverage & Tobacco Products; and Chemical Products. The four industries reporting faster supplier deliveries in August are: Paper Products; Primary Metals; Plastics & Rubber Products; and Fabricated Metal Products. Eight industries reported no change in supplier deliveries in August compared to July.

Inventories*
The Inventories Index registered 49 percent in August, which is a decrease of 0.5 percentage point when compared to the 49.5 percent reported for July, indicating raw materials inventories are contracting in August for the 14th consecutive month. An Inventories Index greater than 42.8 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The four industries reporting higher inventories in August are: Wood Products; Apparel, Leather & Allied Products; Transportation Equipment; and Nonmetallic Mineral Products. The 11 industries reporting lower inventories in August — listed in order — are: Textile Mills; Chemical Products; Fabricated Metal Products; Primary Metals; Paper Products; Miscellaneous Manufacturing; Computer & Electronic Products; Machinery; Furniture & Related Products; Electrical Equipment, Appliances & Components; and Plastics & Rubber Products.

Customers' Inventories*
ISM^®'s Customers' Inventories Index registered 49.5 percent in August, which is 1.5 percentage points lower than the 51 percent reported in July, indicating that customers' inventory levels are considered too low in August following three consecutive months at 50 or above of customer inventories being considered too high.

The five manufacturing industries reporting customers' inventories as being too high during the month of August are: Petroleum & Coal Products; Furniture & Related Products; Transportation Equipment; Machinery; and Plastics & Rubber Products. The eight industries reporting customers' inventories as too low during August — listed in order — are: Textile Mills; Primary Metals; Paper Products; Miscellaneous Manufacturing; Computer & Electronic Products; Food, Beverage & Tobacco Products; Chemical Products; and Fabricated Metal Products.

Prices*
The ISM^® Prices Index registered 53 percent in August, which is a decrease of 2 percentage points when compared to the 55 percent reported for July, indicating an increase in raw materials prices for the sixth consecutive month. In August, 19 percent of respondents reported paying higher prices, 13 percent reported paying lower prices, and 68 percent of supply executives reported paying the same prices as in July. A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

Of the 18 manufacturing industries, the nine industries that reported paying increased prices for its raw materials in August — listed in order — are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Transportation Equipment; Petroleum & Coal Products; Machinery; Computer & Electronic Products; Chemical Products; Fabricated Metal Products; and Nonmetallic Mineral Products. The three industries reporting paying lower prices during the month of August are: Electrical Equipment, Appliances & Components; Furniture & Related Products; and Food, Beverage & Tobacco Products. Six industries listed no change in prices in August compared to July.

Backlog of Orders*
ISM^®'s Backlog of Orders Index registered 45.5 percent in August, a decrease of 2.5 percentage points when compared to the July reading of 48 percent, indicating contraction in order backlogs for the second consecutive month. Of the 88 percent of respondents who reported their backlog of orders, 18 percent reported greater backlogs, 27 percent reported smaller backlogs, and 55 percent reported no change from July.

The four industries reporting growth in order backlogs in August are: Printing & Related Support Activities; Petroleum & Coal Products; Computer & Electronic Products; and Fabricated Metal Products. The 12 industries reporting a decrease in order backlogs during August — listed in order — are: Wood Products; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Furniture & Related Products; Transportation Equipment; Primary Metals; Paper Products; Machinery; Plastics & Rubber Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Chemical Products.

New Export Orders*
ISM^®'s New Export Orders Index registered 52.5 percent in August, the same reading as in July, indicating growth in new export orders for the sixth consecutive month.

The eight industries reporting growth in new export orders in August — listed in order — are: Wood Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Chemical Products; Computer & Electronic Products; Fabricated Metal Products; Machinery; and Paper Products. The six industries reporting a decrease in new export orders during August — listed in order — are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Furniture & Related Products; Primary Metals; Plastics & Rubber Products; and Transportation Equipment.

Imports*
ISM^®'s Imports Index registered 47 percent in August, which is 5 percentage points below the July reading of 52 percent. This month's reading indicates contraction in imports following four consecutive months of the Imports Index registering 50 percent or above.

The four industries reporting growth in imports during the month of August are: Furniture & Related Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Machinery. The nine industries reporting a decrease in imports during August — listed in order — are: Nonmetallic Mineral Products; Apparel, Leather & Allied Products; Textile Mills; Primary Metals; Plastics & Rubber Products; Paper Products; Transportation Equipment; Miscellaneous Manufacturing; and Fabricated Metal Products.

* The Inventories, Customers' Inventories, Prices, Backlog of Orders, New Export Orders and Imports Indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy
Average commitment lead time for Capital Expenditures decreased in August by 3 days to 129 days. Average lead time for Production Materials decreased by 4 days to 60 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies decreased by 2 days to 29 days.