Mixing It Up

The Institute for Supply Management announced their manufacturing index blew through the neutral 50 point level in August, settling at 52.9 and signaling economic growth might be taking root.  New orders were especially strong, posting 64.9, a 9.6 point jump.  Production gained 4 to reach 61.9, while order backlogs expanded by 2.5 to 52.5 points.  Manufacturers continued using up inventory, which posted 34.4 for the month, albeit up slightly from July’s 33.5 reading.  Delivery times slowed markedly, suggesting these tight inventories are beginning to obstruct recovery.  For businesses that can often mean lost sales, and hints at orders to replenish stock may be on the near-term horizon.  Prices paid soared 10 points to 65.0, an additional sign tight inventories may soon lead to some critical shortages.  Employment, likely to remain a laggard for quite some time, was up slightly but remains low at 46.4, pointing to a continuing decline in hiring.  The ISM’s non-manufacturing report remains mired in negative territory, although the headline reading did improve 2 points to 48.4, suggesting  business conditions weakened a bit more in August for the service sector of our economy.  This is significant, since service industries represent the lion’s share of workers.  Underlining this fact, employment posted a weak 43.5 reading despite improving 2 points for the month.  New orders remained weak, but barely, at 49.9.  Elsewhere we saw signs of strength.  Business activity jumped over 5 points to climb into positive territory at 51.3 while prices soared 22, reaching a high reading of 63.1.  Since energy prices were virtually flat for the month, we take this as further evidence of a building shortfall in supplier’s warehouses, a possible source for strong demand in the near future.  Given the mixed message from these two reports combined with what we are seeing as a bias toward improvement, we are moving the needle for this indicator up another notch to the eight-o-clock position.  Visit us at atlasindicators.com for more insight into our current view of the developing global economic frontier.