August Reports on Manufacturing Point to Improvement

By at 1 September, 2020, 3:03 pm

by Raymond J. Keating-

On September 1, two measures of U.S. manufacturing activity illustrated that manufacturing improved in August.

The Institute for Supply Management (ISM) reported that the manufacturing sector expanded in August. Timothy R. Fiore, chairman the ISM’s Manufacturing Business Survey Committee, said:

“The August PMI registered 56 percent, up 1.8 percentage points from the July reading of 54.2 percent. This figure indicates expansion in the overall economy for the fourth month in a row after a contraction in April, which ended a period of 131 consecutive months of growth.”

Later in a statement, he continued, “After the coronavirus (COVID-19) brought manufacturing activity to historic lows, the sector continued its recovery in August, the first full month of operations after supply chains restarted and adjustments were made for employees to return to work.”

As we look ahead, the following point by Fiore also is worth highlighting:

“Impacted by the current economic environment, many panelists’ companies are holding off on capital investments for the rest of 2020. In addition, (1) commercial aerospace equipment companies, (2) office furniture and commercial office building subsuppliers and (3) companies operating in the oil and gas markets — as well as their supporting supply bases — are and will continue to be impacted due to low demand. These companies represent approximately 20 percent of manufacturing output. This situation will likely continue at least through the end of the year.”

Meanwhile, IHS Markit reported that its U.S. Manufacturing Purchasing Managers’ Index also was positive for August, showing “solid improvement in operating conditions across the U.S. manufacturing sector, with overall growth accelerating to the strongest since early-2019. The upturn reflected faster increases in output and new orders, with firms also indicating a renewed rise in employment. Moreover, companies registered the highest degree of confidence in the outlook for output over the coming year since April 2019 amid hopes of further growth of client demand.”

Still, worries on the small business front stand out. For example, Chris Williamson, Chief Business Economist at IHS Markit said:

“Key to the upturn was a jump in new export orders, which rose at the fastest rate for four years, reflecting improving demand in many foreign markets, and benefitting larger companies in particular. Disappointingly, new orders and export sales at smaller manufacturers continued to fall, highlighting an unbalanced recovery in favour of larger firms.”

Keep in mind, that manufacturing overwhelmingly is about small business, with 93.4 percent of employer manufacturers having fewer than 100 employees. Yet, questions persist regarding how much these surveys capture small business activity, as SBE Council noted in an August 4, 2020, analysis:

“It’s also worth noting, as The Wall Street Journal did in this video, that small businesses tend to be largely missed, or underrepresented, in these measures, given that small businesses lack the manpower to respond to such surveys.”

Movement in the right direction anywhere in the economy is most welcome. And while uncertainties persist for all businesses, they loom largest for smaller firms.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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