The Institute for Supply Management’s manufacturing index contracted in August, ending a 35-month streak of economic expansion, the Tempe, Ariz.-based group said today.
The index, known as the PMI, was 49.1 percent last month. It was the first monthly contraction since August 2016. The PMI was 51.2 percent in July.
Institute officials said last month’s results may be more serious than the August 2016 contraction.
“The manufacturing economy has entered a contracting period,” said Timothy R. Fiore, chair of ISM’s Manufacturing Business Survey Committee. “This is much more definitive.” He called the August 2016 contraction an anomaly in the middle of an extended growth period.
If August proves to be the beginning of a negative streak for the PMI, it will raise questions whether a recession is on the way.
The index is considered a leading indicator, providing a gauge for where manufacturing is heading. The ISM report is based on a survey of 350 purchasing and supply executives. A reading above 50 percent indicates a growing manufacturing economy. Below 50 percent indicates economic contraction. The PMI has averaged 54.4 percent the past 12 months.
Nine of 18 industries reported economic growth in August, including textiles, machinery and miscellaneous manufacturing. Seven industries reported economic contraction, including fabricated metal products and transportation equipment.
ISM said last month’s results showed weakness in new orders, production and employment.
“The primary contributor here is new orders,” Fiore said on a conference call. New orders will need to improve to boost the overall manufacturing economy, he said.
“The key here is new demand,” Fiore said. “I can’t predict that.”
The group’s New Orders Index was 47.2 percent in August, down from 50.8 percent the month before. ISM said only three industries reported an increase in new orders — non-metallic mineral products, machinery and chemical products. Eleven industries reported a decline in orders.
ISM’s Production Index slid to 49.5 percent in August, from 50.8 percent in July. Four sectors said output rose, nine said it fell.
The Employment Index declined to 47.4 percent last month from 51.7 percent in July. Six industries reported job growth, nine reported job cuts.
The ISM survey also indicated continuing concern over tariffs levied on imported products. Tariffs are paid by importers, who usually pass the extra cost onto customers. Tariffs are not a payment from one country to another.
The U.S.-China trade war shows no signs of ending. “The tariff situation is going to be here for the long haul,” Fiore said.