ISM Report: Manufacturing Growth Remains Tepid Despite Gains in Employment

In its latest report on growth in the manufacturing sector, the Institute for Supply Management indicated that its purchasing managers’ index for manufacturing remained static through August at 52.8%. Growth in the employment and new orders indexes offset a drop in production.

The figure, 52.8%, indicates continued growth in the sector, but at a relatively low rate: The main index is currently at its lowest point since June 2020, when it fell to 52.4%.

In the Institute’s release, Timothy Fiore, Chair of the ISM’s Manufacturing Business Survey Committee, noted that a number of factors, including improvements in hiring, indicate positive trends despite the tepid month-over-month growth.

“Companies continued to hire at strong rates in August, with few indications of layoffs, hiring freezes or head-count reductions through attrition,” reported Fiore, adding that surveyed executives reported fewer quits than previously. Appropriately, the ISM’s employment index rose into growth territory by 4.3 points to 54.2%.

In a positive turn, several survey respondents reported easing in the interminable supply chain headaches that have plagued manufacturing in the past few years. A transportation equipment executive said the effect of the semiconductor shortage has waned, and a nonmetallic mineral products leader noted “much improvement” in raw material availability.

But the improved supply conditions were not felt universally: One respondent in miscellaneous manufacturing reported that “securing enough raw material supply to keep up is still a challenge” in the face of strong demand.

Some panelists remain concerned about supply chain disruption and the risk of recession. In comments on the survey, several respondents anticipated that demand, while still strong, would not last much longer.

“Orders are still strong through the end of the year, but there is a feeling that customers may start pulling back on orders, either cancelling them or pushing them into 2023,” said an executive in the plastics & rubber products sector.

Another respondent, this one from a computer & electronics company, expressed similar concerns: “Demand from customers is still strong, but much of that is because there is still fear of not getting product due to constraints. They are stocking up. There will be a reckoning in the market when the music stops, and everyone’s inventories are bloated,” they said.

The ISM’s index for new orders rose by 3.3 points to 51.3%, turning from contraction to growth, while the production index slipped 3.1 points to just above contraction at 50.4%.

Outside of the three primary indicators of manufacturing health, the pace of price increases slowed dramatically, down 7.5 points from July to land at 52.5%. Prices have been on the rise since May 2020.