August 2011 ISM Reports

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The pace of growth in manufacturing slowed a bit further in August, with the Institute for Supply Management’s (ISM) PMI falling to 50.6 percent, from 50.9 in July (50 percent is the breakpoint between contraction and expansion); it was the weakest reading in two years. After reciting some index details, Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, wrapped up his comments by saying, “The overall sentiment is one of concern and caution over the domestic and international economic environment, which is affecting customers' confidence and willingness to place orders, at least in the short term."

Wood and Paper Products both reported growth, although Wood Products’ growth was once again limited to new orders. Paper Products’ improvement, as has also been the case for several months, encompassed new export and domestic orders, the need to replenish customers’ inventories, and increases in production and employment. One Paper Products respondent wrote that "demand remains constant and strong."
 

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The non-manufacturing sector grew at a somewhat faster pace in August, reflected by a 0.6 percentage point rise (to 52.7 percent) in the non-manufacturing index (now known simply as the “NMI”). "There is a degree of uncertainty concerning business conditions for the balance of the year,” concluded Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee.

Two of the three service industries that we track expanded: Real Estate, Rental & Leasing; and Agriculture, Forestry, Fishing & Hunting. " We had a good first half; starting to see inflation in many of our input costs; consumer demand is flat," one Ag & Forestry respondent indicated. Reflecting the downturn in construction, one respondent indicated that "this month we have seen a downward trend in sales activities due to weather and economic conditions."

As the table above indicates, the rate of input price increases was mixed during August: it slowed (-3.6 percentage points) for manufacturing and accelerated (+7.6 percentage points) for the service sector (again, 50 is the breakpoint between rising and falling prices).

Paper was the only relevant commodity up in price during August; some respondents indicated paying more for diesel fuel and gasoline while others paid less. No relevant commodity was described as being in short supply.