Manufacturing sentiment in August pointed toward a modest acceleration in growth inside the Institute for Supply Management’s manufacturing survey, even as the headline number stayed flat at 52.8 compared to July.
This data, which was released on Thursday, will almost certainly bolster calls for a 75-basis-point increase in the Federal Reserve’s policy rate later this month. The underlying tone of the ISM data implies solid growth in the manufacturing sector, buttressed by strong demand for labor amid an easing in prices.
One encouraging aspect of this report is the increase back into positive terrain of the forward-looking new orders component, which advanced to 51.3 from 48 previously.
This increase was accompanied by a decline in prices paid, to 52.5 from 60, which is linked to easing energy and gasoline prices during the survey period.
The employment subindex moved back into positive territory, advancing to 54.2 from 49.5 in July.
One challenge in interpreting sentiment surveys—which one might call soft data as opposed to hard data like measures of industrial production—is that general uncertainty, which is elevated currently, tends to dampen top-line data.
And it’s that top-line data that receives most of the public’s attention versus the forward-looking new orders component and the data on hiring.
This report does not read like one where the economy is either in a recession or will soon be falling into one. If anything, the data bolsters arguments for sustained aggressive monetary policy to tame inflation. Survey readings above 50 indicate growth; those below 50 imply contraction.
Even as inflation has soared and the Fed has raised interest rates, top-line sentiment has yet to decline below 50. A reading below 48.7 implies a recession.
Inside the report, comments from executives affirm our analysis of a sustained solid pace in orders and growth. Consider this quote from a survey participant who works in the transportation equipment industry: “Strong sales continue. The impact of the chip shortage is slowing, and the decreasing COVID-19 resurgence in Asia is now affecting production more than chips.”
That view is in line with what we are observing inside our own proprietary RSM US Middle Market Business Index.
