Workers sew together leather panels that will form footballs at a football factory the U.S. (Photographer: Ty Wright/Bloomberg)

U.S. Factory Gauge Jumps to 14-Year High as Orders Pick Up

(Bloomberg) -- A gauge of U.S. manufacturing unexpectedly jumped to the highest since May 2004 as orders, production and employment all picked up, even as companies contend with potential complications from trade tariffs, according to a report Tuesday.

Highlights of ISM Manufacturing (August)

  • Institute for Supply Management’s factory index climbed to 61.3 (est. 57.6, exceeding all estimates in a Bloomberg survey) from 58.1; readings above 50 indicate expansion
  • Measure of new orders advanced to 65.1 from 60.2; production index increased to 63.3 from 58.5
  • Measure of export orders fell to a 10-month low of 55.2 from 55.3 while the index of imports slipped to 53.9, lowest since last September, from 54.7
U.S. Factory Gauge Jumps to 14-Year High as Orders Pick Up

Key Takeaways

The report shows factory demand is strengthening in the third quarter and adds to signals that the nearly decade-old expansion will hold up well in the second half of 2018. The rise in the employment gauge also suggests manufacturers may record another month of solid payroll gains in Labor Department figures due Friday.

At the same time, the gauges of exports and imports may indicate that months of intensifying tensions are taking a toll on trade. Negotiations with Canada to modernize the North American Free Trade Agreement ended without a deal by Friday’s deadline, though talks are scheduled to resume Wednesday.

President Donald Trump wants to move ahead with tariffs on $200 billion of Chinese imports as soon as a public-comment period concludes Sept. 6, Bloomberg News reported last week, citing six people familiar with the matter.

Official’s Views

“The economy is continuing to power forward despite some of the other issues,” Timothy Fiore, chairman of the ISM manufacturing survey, said on a conference call Tuesday.

While the third quarter traditionally is when companies plan investment for the following year, Fiore said, some are likely hesitant to make major capital commitments when the economic cycle is in its later stages and faces headwinds from trade tariffs, a labor shortage and supply constraints. Some are already re-evaluating their manufacturing footprint and supply chain, he said.

What Our Economists Say

The August reading throws cold water on the notion that trade tensions have hamstrung optimism, and suggests ongoing strength in the second half of the year. Rising trade tensions have been a major concern for the manufacturing sector over the summer and were cited as a risk for both current production and new orders. Yet, the index for new export orders was essentially unchanged in August from the prior month.

-- Tim Mahedy and Carl Riccadonna, Bloomberg Economics

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