Those expecting a boost from the ISM report for August were disappointed today.
The Bloomberg Consensus estimate for ISM was 52.8, with a range of 51.5 to 54.0. The report was below any economist’s expectation at 51.1.
The ISM index, at a lower-than-expected 51.1, is signaling the slowest rate of growth for the factory sector since May 2013. And the key details are uniformly weak.
New orders, at 51.7, are at one of the slowest rates of monthly growth of the recovery, since April 2013. Backlog orders, at 46.5, are in a third month of contraction. New export orders, at 46.5, are also in their third straight month of contraction and are at the lowest rate since July 2012.
ISM’s sample wasn’t hiring much in August, at 51.2 for a 1.5 point decline from July and the weakest reading since April. Production slowed and prices paid, at only a 39.0 level last since in March, points to deflationary pressures.
The good news for the economy is that this report failed to pick up the auto-led surge that lifted the factory sector noticeably in June and July. Still, the ISM is followed closely and will raise doubts, justifiably or not, over a September 17 rate hike.
ISM Details
Let’s investigate all the details of today’s report straight from the Institute for Supply Management Manufacturing ISM® Report On Business® released this morning.
| Index | Aug | Jul | PP Change | Direction | Rate of Change | Trend in Months |
|---|---|---|---|---|---|---|
| PMI® | 51.1 | 52.7 | -1.6 | Growing | Slower | 32 |
| New Orders | 51.7 | 56.5 | -4.8 | Growing | Slower | 33 |
| Production | 53.6 | 56.0 | -2.4 | Growing | Slower | 36 |
| Employment | 51.2 | 52.7 | -1.5 | Growing | Slower | 4 |
| Supplier Deliveries | 50.7 | 48.9 | +1.8 | Slowing | From Faster | 1 |
| Inventories | 48.5 | 49.5 | -1.0 | Contracting | Faster | 2 |
| Customers’ Inventories | 53.0 | 44.0 | +9.0 | Too High | From Too Low | 1 |
| Prices | 39.0 | 44.0 | -5.0 | Decreasing | Faster | 10 |
| Backlog of Orders | 46.5 | 42.5 | +4.0 | Contracting | Slower | 3 |
| Exports | 46.5 | 48.0 | -1.5 | Contracting | Faster | 3 |
| Imports | 51.5 | 52.0 | -0.5 | Growing | Slower | 31 |
Key Points
- Backlog of orders are in contraction
- Growth in new orders plunged but still positive
- Customer inventories surged (not a good sign for future orders)
- Exports contracting faster for the third month
- Prices have plunged
There’s nothing in the ISM report to make the Fed want to hike, but the Fed will do what they want.
Mike “Mish” Shedlock
