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Manufacturing Sector Took a Turn for the Worse in August

Yesterday we noted the weaker reading from the Chicago Purchasing Managers’ Index data on manufacturing activity in the Chicago area. This tends to foreshadow the state of the national manufacturing sector.

The Chicago report turned out to be a good predictor of the national manufacturing index released today by the Institute for Supply Management. The national index fell to 49.4 in August from 52.6 in July amid widespread declines in the various sectors of manufacturing.

The August result was the first drop below 50 since the index spent five months below that threshold last winter. Though a reading of 49.4 suggests the manufacturing sector may have contracted last month, it is still likely that the overall economy continued to expand, on the strength of consumer spending, services and a resilient job market.

Among the components of the national manufacturing report, the new orders index fell to 49.1 from 56.9, while production fell to 49.6 from 55.4. The backlog of orders dropped to 45.5 from 48.0 in July, suggesting shorter order backlogs.  Both would suggest slower manufacturing in the future.

The manufacturing employment index fell even further below 50, dropping to 48.3 from 49.4. That trend suggests that manufacturing payrolls could show a decline in tomorrow’s Employment Situation report from the Bureau of Labor Statistics.

Overall, the report shows that the manufacturing sector is still performing inconsistently, and that is consistent with ongoing slow growth in the broader economy.

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