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US Manufacturing Industry Reaches New Highs in August: ISM

H.S. Borji
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US Manufacturing Industry Reaches New Highs in August: ISM

The US manufacturing industry accelerated in August at the fastest pace in more than three years, as a strong pick up in new orders and production contributed to another month of sustained job creation.

The Institute for Supply Management’s gauge of US manufacturing industry rose to 59 from 57.1. A median estimate of economists called for a slight decrease to 56.8 The US manufacturing industry has been above the 50 mark that separates expansion from contraction for fifteen consecutive months.

A reading above 50 is a general sign of growth in manufacturing activity, whereas a reading below that threshold signifies contraction.

The August PMI reading was the highest since March 2011, when the index ticked in at 59.1.

Seventeen of the 18 manufacturing industries advanced in August, led by plastic and rubber products, furniture and related products, and fabricated metal products. The only industry to report contraction in August was textile mills, ISM data showed.

New orders rose sharply in August, rising for the fourteenth consecutive month. In total, 14 of the industries reported growth in new orders, led by plastics and rubber products, printing and related support activities, and nonmetallic mineral products. The new orders sub-index increased 3.3 percentage points to 66.7.

Production levels increased in 15 of the manufacturing sub-sectors, ISM data showed. The gains were led by wood products, plastics and rubber products, and primary metals. The production sub-index increased 3.3 percentage points to 64.5.

An increase in business activity supported another strong month of job creation. Manufacturing employment increased for the fourteenth consecutive month, albeit at a slightly slower rate than in July. The employment sub-index decreased 0.1 percentage point to 58.1. Fourteen of the 18 manufacturing industries said they added payroll last month, led by wood products, printing and related support activities, and textile mills.

“Overall business is improving. Order backlog is increasing. Quotes are increasing. Much more positive outlook in our sector,” said one manager from the electrical equipment, appliances and components sub-sector.

“Demand is strong. Numbers are up over last year,” according to a respondent from the machinery industry.

“International markets are slower due to Euro holidays, political unrest and slowing Chinese markets. North American business off slightly,” said a representative of the wood products sub-sector.

Today’s figures suggest the US economy remains firm in the third quarter, building off a stronger April-June period that gross domestic product accelerate at an annual rate of 4.2 percent.

Last month the Commerce Department said durable goods orders surged 22.6 percent in July, led by higher demand for aircraft. Gains in this category will help offset an unexpected drop in consumer spending in July. Consumer spending, which accounts for more than two-thirds of the US economy, declined 0.2 percent in July, following a gain of 0.4 percent the previous month. That marked the first drop in personal spending in six months.

Despite a faster labour market recovery this year, wage growth continues to stagnate, which partly explains the drop in consumer spending. Personal income rose just 0.2 percent in July, official data showed last week.

The Commerce Department on Friday is expected to announce the creation of 200,000 jobs in August. However, average hourly earnings are forecast to increase just 0.2 percent after flat-lining the previous month.

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