The Institute for Supply Management (ISM) Purchasing Managers Index (PMI) edged slightly higher in September, up from 50.6 in August to 51.6 in September. Values over 50 indicate an expanding manufacturing sector, and yet, it is clear that manufacturers are just barely growing. 

The various components to this index were mixed. Most troublesome, the measure for new orders was unchanged at 49.6 – the third consecutive month of contraction. That is not a good sign moving forward. Yet, many of the other indicators saw modest improvements. Production, for instance, shifted from contraction to expansion (up from 48.6 to 51.2) for the month. Likewise, employment, supplier deliveries and exports also increased somewhat. Pricing pressures were virtually unchanged from August but continue to grow overall.

Many of the survey responses noted the weak economic environment and continued anxieties regarding global demand.  Several of the comments noted how the economy was “a drag on our economic outlook” and how there was a high degree of caution in the marketplace.  Some areas continue to grow (e.g., motor vehicles, metals, paper), and yet, even where sales are “steady,” there remain concerns about the larger global economy.

This report provides some comfort for those of us who are forecasting slow growth in the remainder in this year. I am predicting 1.4 percent growth in real GDP for 2011. But, it also shows that the numerous headwinds facing manufacturers continue to have an impact on our growth. While modest improvements in production and employment are a positive for the industry, sliding new orders will pose a challenge to this in the coming months.

Chad Moutray is chief economist, National Association of Manufacturers.