The ISM Manufacturing survey declined marginally in August 2011 and is sitting at 50.6 (50 separates economic manufacturing contraction and expansion). Econintersect does not respect surveys. They do not end up being consistent compared to hard economic data that comes later, and usually miss economic turning points.
“The PMI registered 50.6 percent, a decrease of 0.3 percentage point from July, indicating expansion in the manufacturing sector for the 25th consecutive month, at a slightly slower rate. The Production Index registered 48.6 percent, indicating contraction for the first time since May of 2009, when it registered 45 percent. The New Orders and Backlog of Orders Indexes edged up slightly from July, but both indexes are indicating contraction in August at slower rates than in July. The rate of increase in prices slowed for the fourth consecutive month, dropping another 3.5 percentage points in August to 55.5 percent. 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.”
PERFORMANCE BY INDUSTRY
Of the 18 manufacturing industries, 10 are reporting growth in August, in the following order: Wood Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Fabricated Metal Products; Paper Products; Transportation Equipment; Chemical Products; Computer & Electronic Products; and Machinery. The six industries reporting contraction in August — listed in order — are: Plastics & Rubber Products; Textile Mills; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; and Primary Metals.
There are a lot of meaningless survey information items (economically speaking) in the ISM survey. It is interesting to note that the ISM Manufacturing represents less than 10% of USA employment, and approximately 20% of the business economy. ADP has already reported employment (analysis here) – and has indicated employment in this sector FELL in August. Yet the ISM survey says it is growing. [Addendum - the BLS reported a 3,000 loss in manufacturing employment]
New orders and backlog of orders have direct economic consequences – IF the opinions are accurate. Contracting new orders cannot be a good sign – and based on past recessions has been an indicator a recession was starting. The graphs below are from last month’s analysis of the ISM manufacturing survey as the indexes for both new orders and backlog has improved only marginally – so they are still graphically correct.
Backlog is a poor indicator of an impending recession – but is used an indicator that an expansion is underway. We can definitely say this survey is not telling us we are in a period of strong growth.
Econintersect continues to believes that whether a recession is likely is still an open question. However, key indicators (which the ISM surveys are not among them) are not yet indicating a recession.