Manufacturing continues to recover in August; employment contraction slows


The manufacturing industry continued its recovery in August, according to a report by the Institute for Supply Management based on a survey of supply chain executives in the US. However, employment in manufacturing continued to contract in August, albeit at a slower rate.

“After the coronavirus (Covid-19) brought manufacturing activity to historic lows, the sector continued its recovery in August,” said Timothy Fiore, chair of the ISM’s Manufacturing Business Survey Committee.

The organization’s PMI composite index for manufacturing rose to a level of 56.0% in August, up from 54.2% in July.

August’s reading marked the PMI’s highest level of expansion since November 2018. Readings above 50% indicated expansion in manufacturing while readings above 42.8%, over time, indicate expansion in the overall economy.

“The past relationship between the PMI and the overall economy indicates that the PMI for August corresponds to a 3.9% increase in real gross domestic product on an annualized basis,” Fiore said.

The PMI is based on the diffusion indexes of five indexes with equal weights: new orders, production, employment, supplier deliveries and inventories. The diffusion index includes the percent of positive responses plus one-half of those responding the same (considered positive). Four of the five indexes are seasonally adjusted, with inventories being the exception.

But while the PMI was improving overall, the manufacturing employment index continued to contract for the 13th month in a row in August. ISM’s manufacturing employment index was at 46.4% in August. Still, that is up from July’s reading of 44.3%. Fiore noted August marked the fourth month in a row of slower contraction for the employment index since its low of 27.5% in April.

“Long-term labor market growth remains uncertain, but strong new-order levels and an expanding backlog signify potential strength for the rest of the third quarter,” Fiore said.