The Institute for Supply Management Manufacturing Purchasing Managers Index (PMI) increased 1.8% from July to 56 in August. It was the fourth consecutive month of expansion in the overall economy after a contraction in April. In addition, each of the months of June, July and August have outpaced the PMI in the first quarter of this year and the fourth quarter of 2019.
This year the PMI declined steadily through April, when it dropped precipitously as the COVID-19 pandemic erupted. However, it has climbed steadily since then with the most recent three months surpassing levels earlier in the year.
“After the coronavirus (COVID-19) brought manufacturing activity to historic lows, the sector continued its recovery in August,” said Tim Fiore, chair of the Institute for Supply Management manufacturing business survey committee. “The first full month of operations after supply chains restarted and adjustments were made for employees to return to work.”
Survey committee members reported that their companies and suppliers operated in reconfigured factories, with limited labor application due to safety restrictions.
Panel sentiment was generally optimistic (1.4 positive comments for every cautious comment), though to a lesser degree compared to July.
Demand expanded. The New Orders Index grew at very strong levels, supported by the New Export Orders Index expanding modestly. The Customers’ Inventories Index was at its lowest figure since June 2010, which is considered a positive for future production, and the Backlog of Orders Index showed growth for the second consecutive month.
Prices continued to expand and at higher rates, reflecting a shift to seller pricing power — a positive for new-order growth.
Of the 18 manufacturing industries, 15 reported growth in August. Wood Products was at the top of the list. With the current economic environment, many panelists’ companies are deferring capital investments for the rest of 2020, said Fiore.
Also, certain sectors — notably commercial aerospace equipment companies, office furniture and commercial office building sub-suppliers and companies operating in the oil and gas markets (as well as their supporting supply bases) — and will continue to be impacted due to low demand. These sectors represent about 20% of manufacturing output.
“This situation will likely continue at least through the end of the year,” said Fiore.
