ISM manufacturing index contracts, ending 35 months of growth

Dive Brief:

The Institute for Supply Management's (ISM) manufacturing index fell to 49.1% in August, down from 51.2% in July, the lowest rate seen since January 2016. Expansion in the manufacturing sector has been softening over the past four months, according to the report, however last month's numbers came in under 50%, indicating a shift from "slowing growth" to decline.
The index's measures of demand, new export orders, consumption and inputs (ISM defines these as supplier deliveries, inventories and imports) contracted in August, largely due to disruptions from the current trade environment. "Trade remains the most significant issue," Timothy R. Fiore, chair of the Institute for Supply Management Manufacturing Business Survey Committee, said in a statement. "Respondents continued to note supply chain adjustments as a result of moving manufacturing from China."
Despite the impact of the trade war, "supply chains are responding better and ... companies are continuing to closely match inventories to new orders, a positive sign," Fiore said, even as ISM's report indicates overall economic growth is slowing down.

Dive Insight:

ISM's research found overall business confidence has notably decreased throughout the year. Sentiments among the businesses surveyed for the index have now reached their lowest levels of 2019.

In line with this finding, a recent survey from the US-China Business Council (USCBC) similarly found 80% of its member firms have been negatively affected by the trade war and only 20% are optimistic about the future of their operations in China.

Alongside the decline in manufacturer confidence, evidence suggests customers are wary as well. ISM's new orders index saw the most severe decline of its report categories (3.6 percentage points), causing Fiore to express concern that the industry is "running out of gas," according to an interview with Supply Chain Management Review. While August typically represents a "lull" before peak season, Fiore said, the degree to which the sector could be losing momentum is concerning.

Furthermore, as the Trump administration's latest round of tariffs go into effect this month, and in December, firms are increasingly worried about the impact on peak season contracts and consumer tolerance for increased prices.