August 2013 ISM Reports

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The most-closely followed nationwide manufacturing diffusion index showed that the manufacturing sector expanded to the fastest rate in two years during August. The Institute for Supply Management’s (ISM) PMI rose to 55.7 percent, an increase of 0.3 percentage point from July's reading of 55.4 percent (50 percent is the breakpoint between contraction and expansion). “Comments from the [respondent] panel range from slow to improving business conditions depending upon the industry,” said Bradley Holcomb, chair ISM’s Manufacturing Business Survey Committee.

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The PMI’s advance paralleled the change in the Chicago Business Barometer’s (CBB) headline number; the CBB is usually a fairly reliable indicator of how the PMI will behave. Underlying details of the two reports diverged materially, however. E.g., production, employment and supplier deliveries all rose in the ISM report but slipped lower in the CBB.

Details in the ISM report were generally favorable for the two manufacturing industries we track. Domestic Wood Products manufacturers face some headwinds from higher input prices and expanded imports, though, while Paper Products manufacturers are experiencing declining export orders and order backlogs. Nonetheless, one Paper Products respondent opined that "material prices continue to be favorable; business is steady."

The service sector grew at the fastest pace on record in August. The non-manufacturing index (now known simply as the “NMI”) registered 58.6 percent, 2.6 percentage points higher than July’s 56.0 percent. “The majority of respondents' comments continue to be mostly positive about business conditions and the direction of the overall economy," said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. 

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Overall activity expanded among the service industries we track. One Construction respondent observed that "we seem to have a flurry of activity in our pipeline." The positives and negatives appear reasonably well balanced. E.g., although new (including export) and backlogged orders generally picked up, so too did inventories.

Relevant commodities up in price included oil, fuel, lumber (pine, spruce and treated), corrugated boxes and packaging, and paper. Natural gas was down in price.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.