The August ISM index showed US manufacturing sector activity expanded further due to extraordinarily strong demand, but the sector is still laying off workers and some sectors have not fully recovered from the COVID slowdown.
The headline PMI index rose to 56.0 from 54.2 in July, above expectations for a smaller increase to 54.7 and the highest reading since November 2018, the Institute for Supply Management reported Tuesday. The reading suggests that the overall manufacturing picture has more than recouped what it lost due to COVID.
The new orders index rose to 67.6 from 61.5 in July, while the production reading rose to 63.3 from 62.1, solid gains for both. Some respondents noted that production is having trouble keeping up with demand. Inventories contracted in the month while supplier deliveries were slower, further signs that factory activity has picked up further.
However, not all the news is positive. The employment index rose to 46.4 from 44.3 in July, indicating a slower pace of contraction, but still an indication of further layoffs. ISM said that the mix between firms hiring and those laying off was roughly an even split in the month. Uncertainty about business conditions now that the impact of fiscal stimulus is start wane and health concerns about bringing new employees in has impacted hiring.
The Markit manufacturing index released earlier Tuesday was revised down to 53.1 from the 53.6 flash estimate but remained above the 50.9 reading in July.
Construction spending for July, released at the same time as the ISM report, rose by only 0.1%, below the 1.0% increase expected due to declines in private non-residential building and public construction. Year-to-date construction spending was still 4.0% above the same period a year earlier.
Private residential construction rose by 2.1%. Calculations using the published data show that private new home construction rose by 3.5%, in line with the gains in the housing starts and permits data already released.
Single-family building rose by 3.1%, adding to the 4.9% increase in multi-family building. Home re-modeling was down 0.5% after surging during the shutdown when workers were isolated at home.
Private non-residential construction spending fell by 1.0% on declines in all the key industries. Public construction fell by 1.3% on a sharp decline in state and local Government spending, partially offset by a small increase in federal government spending.