MAPI Analysis on ISM Index: Contraction in Manufacturing Sector
The following is an analysis from Cliff Waldman, Senior Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), regarding the Institute for Supply Management (ISM) report for August 2012.
“Against the backdrop of a sharply slowing global economy, the ISM Index was below 50 percent (49.6) during August, indicating contraction in the U.S. manufacturing sector,” Waldman said. “The index has now signaled contraction for three consecutive months and the component data testify to fundamental weakness. New orders, the backlog of orders, production, and exports were all disturbingly below the 50 percent mark in August. The sharp jump in raw materials prices adds to concerns about short-term growth prospects. Employment, which has been a moderately strong point for U.S. manufacturing, continued to grow, but at a slower pace.
“The recent ISM reports have been somewhat at odds with the more positive manufacturing output data produced by the Federal Reserve, as weather and other types of seasonal distortions have created unusual volatility in manufacturing production measures,” Waldman added. “It is nonetheless clear that a sharply slowing global economy and policy uncertainty in the U.S. are sapping the U.S. manufacturing sector of the strength that allowed it to be a growth catalyst in the earlier quarters of recovery from the destabilizing 2007-2009 recession. While slow growth remains the most likely short-term outcome for U.S. manufacturing, the risk of an actual factory sector contraction has risen considerably in recent weeks.”