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September 06, 2018

Economy Watch: Reports Say U.S. Manufacturing & Service Sectors Expanded in August

The good news was tempered somewhat by a decline in consumer sentiment last month.

By  Christopher Ruvo

Two recently-released surveys from the Institute of Supply Management painted a picture of an economy that’s strong despite global trade tensions and political unrest. That’s a potential good sign for the promotional products industry, which tends to trend the way of the broader marketplace. Still, the news was tempered somewhat by a decline in consumer sentiment.

The ISM’s manufacturing index soared to a 14-year high of 61.3 in August – up from 58.1 in July. The performance beat the expectations of economists surveyed by MarketWatch, which had forecast the index to tally 57.9. Encouragingly, readings above 50 indicate that more manufacturing companies are expanding than shrinking. “Generally high levels of demand continue, and [we are] planning for this elevated rate through the rest of the year,” a leader in the field of Transportation Equipment manufacturing told ISM.

ISM said that 16 of the 18 manufacturing industries reported growth in August. The two industries that reported contraction in August were Wood Products and Primary Metals.

Meanwhile, the ISM’s non-manufacturing index also outperformed expectations in August, jumping up nearly three percentage points from July’s reading of 55.7 to 58.5 last month. Analysts surveyed by Thomson Reuters had predicted an August score of 56.8. Readings above 50 are indicative that the United States’ service sector is expanding.

Despite the strong numbers, the macro economic data wasn’t all roses. In a separate report, the Commerce Department said that factory orders for July fell 0.8%. That’s more than the 0.6% drop expected by Thomson Reuters analysts. In June, factory orders increased 0.7%.

Meanwhile, the University of Michigan’s closely-watched Surveys of Consumer Sentiment struck a sobering note, too. The study’s “Index of Consumer” sentiment fell to 96.2 in August, down nearly 2% from July and 0.6% from a year earlier. The “Current Economic Conditions Index” fell too, declining to 110.3, down 3.6% from July and 0.5% from a year ago.

“Most of the August decline was in the Current Economic Conditions Index, which fell to its lowest level since November 2016,” said Richard Curtin, chief economist for the Surveys of Consumers. “These results stand in sharp contrast to the recent very favorable report on growth in the national economy. The dominating weakness was related to less favorable assessments of buying conditions, mainly due to less favorable perceptions of market prices and to a lesser extent, rising interest rates.”

Nonetheless, Curtin concluded on a positive note, saying that consumer spending is still likely to increase. “Personal consumption,” he said, “can be expected to grow by 2.6% in the year ahead.”