ISM Manufacturing Survey Continues to be Less Good in August 2010

According to the Institute of Supply Management (ISM), economic activity in the manufacturing sector expanded in August for the 13th consecutive month, and the overall economy grew for the 16th consecutive month in August 2010.

The ISM survey’s main use is for investors – as it historically tracts the Dow’s performance. From the viewpoint of an economic analyst, this is a survey with very poor methodology. It creates values for issues that are interesting but not economically significant. Survey’s in general are misleading at economic turning point.

For those who would like to see all the data – you can use this hyperlink.

What IS important is new orders and backlog. This is an early warning for retail sales and employment.

In both cases, the trend lines are showing less growth. In the case of backlog, this survey data continues to completely contradicted by manufacturing data when it is released which continues to show backlog decreasing. But we can assume that the rate of backlog decline is increasing – and that points to further layoffs in manufacturing.

According to the ISM:

The eight industries reporting growth in new orders in August — listed in order — are: Primary Metals; Apparel, Leather & Allied Products; Paper Products; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Transportation Equipment; and Chemical Products. The six industries reporting decreases in new orders in August — listed in order — are: Nonmetallic Mineral Products; Furniture & Related Products; Plastics & Rubber Products; Computer & Electronic Products; Machinery; and Food, Beverage & Tobacco Products.

The eight industries reporting increased order backlogs in August — listed in order — are: Paper Products; Primary Metals; Computer & Electronic Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Transportation Equipment; Fabricated Metal Products; and Food, Beverage & Tobacco Products. The seven industries reporting decreases in order backlogs during August — listed in order — are: Furniture & Related Products; Nonmetallic Mineral Products; Apparel, Leather & Allied Products; Plastics & Rubber Products; Printing & Related Support Activities; Machinery; and Chemical Products.

If the hard data confirms what the ISM manufacturing survey is telling us, there are growing sales headwinds to 3Q2010 GDP.