Manufacturing economy expands in August

ISM index tops 50 for first time in 18 months
By Bob Vavra September 2, 2009

Economic activity in the manufacturing sector expanded in August, following 18 consecutive months of contraction, and the overall economy grew for the fourth consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business .
The report was issued today by Norbert J. Ore, chair of the Institute for Supply Management Manufacturing Business Survey Committee. "The year-and-a-half decline in manufacturing output has come to an end, as 11 of 18 manufacturing industries are reporting growth when comparing August to July," Ore said. "While this is certainly a positive occurrence, we have to keep in mind that it is the beginning of a new cycle and that all industries are not yet participating in the growth. The August index of 52.9% is the highest since June 2007."
The 4 percentage point increase was driven by significant strength in the New Orders Index, which is up 9.6 points to 64.9%, the highest since December 2004. The growth appears sustainable in the short term, as inventories have been reduced for 40 consecutive months and supply chains will have to re-stock to meet this new demand.
A PMI in excess of 41.2%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the fourth consecutive month in the overall economy, as well as expansion in the manufacturing sector for the first time since January 2008. "The past relationship between the PMI and the overall economy indicates that the average PMI for January through August (42.2%) corresponds to a 0.3% increase in real gross domestic product," Ore said. "However, if the PMI for August (52.9%) is annualized, it corresponds to a 3.7% increase in real GDP annually.