ISM Manufacturing: Strong Headline, But New Orders Fall

Bottom Line: ISM's Survey of manufacturing activity rose sharply more than expected in August, led by the employment component. While levels were still strong across the board, new orders fell slightly and production rose only slightly as inventories increased sharply. The differential between new orders and inventory levels declined, suggesting the pace of manufacturing gains may decelerate a bit in coming months. Overall, though, the report suggests manufacturing is growing at a moderate rate, near its best pace of this cycle. The ISM Manufacturing Index ROSE by 2.5 points in August to 58.8%, compared with market expectations for a smaller increase to a 56.4% This indicates that manufacturing activity expanded moderately during the month. New Orders declined slightly from 60.4% to 60.3%. Meanwhile, Export Orders declined as well. Production, though, grew slightly from 60.6% to 61.0%. Consequently, Order Backlogs grew sharply. Inventories grew sharply from 50.0% to 55.5%. They are modestly above the average survey level for the last twelve months. Employment grew sharply from 55.2% to 59.9%, confirming the stronger goods producing jobs in this morning's report. Prices were unchanged. Quotes from Survey:

• "Steady demand across businesses." (Chemical Products)
• "Demand for light construction equipment continues strong; usually at this time of year, demand slackens." (Machinery)
• "Overall very steady; starting to pick up as expected." (Computer & Electronic Products)
• "Overall optimism about the market, both for 2017 and 2018." (Miscellaneous Manufacturing)
• "Business has strengthened over the summer, beyond [the] same period last year." (Paper Products)
• "Busy production month for August." (Textile Mills)
• "Sales remain strong month-to-month." (Transportation Equipment)
• "Slightly higher order intake." (Electrical Equipment, Appliances & Components)
• "Order board is very strong right now." (Food, Beverage & Tobacco Products)
• "Business is steady and strong." (Furniture & Related Products)