ISM PMI Shows More Economic Contraction, Echoes Call for QE3

The Institute for Supply Management (ISM) is out with its Report on Business for August and the trend is one of contraction. The PMI came in at 49.6%, showing that new orders and production contracted. Dow Jones was calling for a reading of 49.9%, which would have also been under the 50.0% line marking growth or contraction. The report also noted that employment and inventories were growing and that supplier deliveries were faster.

Today’s news shows that the manufacturing sector has now contracted for the third time in August since July 2009, but the ISM maintains that the overall economy is still up for the 39th consecutive month when you include the services sector. Here are some of the issues brought up:

• PMI at 49.6% was a decrease of 0.2 percentage points from July’s reading of 49.8%, indicating contraction in the manufacturing sector for the third consecutive month.
• This was the lowest PMI reading since July 2009.
• New Orders Index was 47.1%, a decrease of 0.9 percentage points from July. This was also third consecutive month that the component was in contraction.
• Production Index was down a sharp 4.1 points to 47.2%, which is the first contraction in production since May 2009.
• Employment Index remained in growth territory at 51.6%, but this was the lowest reading since November 2009.
• Prices Index rose a sharp 14.5 points from July to 54.0%.
• Comments from the panel generally reflect a slowdown in orders and demand, with continuing concern over the uncertain state of global economies.

JON C. OGG