The survey asks purchasing managers to share figures about the trends they observe in production, new orders, backlog of orders, employment, supplier deliveries, inventories, customers’ inventories, new exports orders, imports and prices.
When the ISM index is above 50, this represents a growing manufacturing sector, while an ISM below 50 indicates contraction. An ISM equal to 50 indicates a standstill in the evolution of the manufacturing sector.
The ISM Index was above 50 for the past 5 months, but activity in the manufacturing sector lost 3.2 points in August to 49.4 points, compared to 52.6 points in July. The results of the monthly survey showed a figure below the 50 that delineates contraction from growth in business.
The sub-index of production fell by 5.8 percentage points, new orders dropped 7.8 points and the employment component fell 1.1 points. This figure is a surprise for economists who expected an increase of the ISM Index. This is also a negative surprise for the US economy, as the manufacturing sector continues to tread water. The manufacturing sector has been particularly affected by the strength of the US dollar and weak demand.
Next Employment Report will be Crucial
Investors should now monitor the employment figures of August (NFP Report), as according to the last speech of Janet Yellen, a higher rate in September can still be expected. She said that FedFunds rates would rise in the coming months according to economic data that could confirm (or not) forecasts of the FOMC. It will monitor the number of jobs created and also the evolution of wages and production capacity.
“I believe the case for an increase in the federal funds rate has strengthened in recent months. Of course, our decisions always depend on the degree to which incoming data continues to confirm the Committee’s outlook” Yellen said.