Pace accelerating for manufacturing

Expansion in August is third in a row

U.S. manufacturing expanded in August at the fastest pace since late 2018, powered by growth in new orders that are a bright spot in an otherwise struggling economy.

The Institute for Supply Management, an association of purchasing managers, reported Tuesday that its manufacturing index climbed to 56 in August from 54.2 in July, highest since November 2018. Anything above 50 signals growth, and U.S. manufacturing has been expanding for three-straight months.

The reading was bigger than economists had forecast.

Improved factory activity, along with strength in housing and auto sales, suggest the fledgling recovery is beginning to broaden. The gradual reopening of businesses and steady improvement in consumer demand that left inventories depleted are boosting manufacturing, helping support the economic rebound during the elevated unemployment and layoffs across industries.

As the pandemic and the measures meant to contain it paralyzed the American economy, the survey showed that manufacturing contracted in March, April and May before resuming growth in June.

The institute reported that orders, production and export orders all grew faster in August. But the survey’s measurement of hiring shrank for the 13th-straight month. Fifteen of 18 industries reported growth in August, led by wood products, plastics and rubber, food and

textiles.

The survey measures the change in manufacturing activity, not the level of that activity. So even though factories are growing again, they have not regained the ground they lost in the spring, “Overall, the recovery in manufacturing has been swift, but levels of activity remain below the levels before the shutdowns,” Contingent Macro Advisors said in a research report.

Timothy Fiore, chairman of the institute’s manufacturing survey committee, estimated that factories overall are 60% to 70% of the way back to prepandemic levels. Manufacturers, he said, are getting used to operating in pandemic conditions, imposing stricter safety guidelines to prevent infections. Some continue to struggle to get the supplies they need to meet demand.

The virus hit the economy hard in the spring. Gross domestic product — broadest measure of economic output — plummeted at a 31.7% annual pace from April through June, by far the worst three months in records dating back to 1947.

The institute’s index of factory inventories fell to 44.4 in August, the lowest since January 2014, indicating stockpiles were declining at a faster pace. Customer inventories contracted at the quickest rate since June 2010, the report showed.

The overall manufacturing gauge was also boosted by a slowdown in delivery times, which indicates supply bottlenecks.