Economic activity in the manufacturing sector expanded in September, and the overall economy grew for the 100th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.
Manufacturing expanded in September as the PMI registered 60.8 percent, an increase of 2 percentage points from the August reading of 58.8 percent. This indicates growth in manufacturing for the 13th consecutive month and is the highest reading since May 2004, when the index registered 61.4 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee states, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through September (57.1 percent) corresponds to a 4.4 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI for September (60.8 percent) is annualized, it corresponds to a 5.5 percent increase in real GDP annually.”
A PMI above 43.3 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the September PMI indicates growth for the 100th consecutive month in the overall economy and the 13th straight month of growth in the manufacturing sector.
Orders, Production and Inventory
ISM’s New Orders Index registered 64.6 percent in September, which is an increase of 4.3 percentage points when compared to the 60.3 percent reported for August, indicating growth in new orders for the 13th consecutive month.
“Order input continues at a strong pace, averaging 61.6 percent since December 2016, setting the pace for production activity,” says Fiore. A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).
ISM’s Production Index registered 62.2 percent in September, which is an increase of 1.2 percentage points when compared to the 61.0 percent reported for August, indicating growth in production for the 13th consecutive month.
“Production remains at strong growth levels in most industries, in spite of weather conditions and supplier delivery constraints experienced during the period,” says Fiore. An index above 51.4 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.
The Inventories Index registered 52.5 percent in September, which is a decrease of 3 percentage points when compared to the 55.5 percent reported for August, indicating raw materials inventories grew in September compared to August, but at a slower rate. An Inventories Index greater than 42.9 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).
ISM’s Backlog of Orders Index registered 58 percent in September, an increase of 0.5 percentage point from the 57.5 percent reported for August, indicating growth in order backlogs for the eighth consecutive month. Of the 89 percent of respondents who reported their backlog of orders, 29 percent reported greater backlogs, 13 percent reported smaller backlogs, and 58 percent reported no change from August.
Exports, Imports and Prices
ISM’s New Export Orders Index registered 57 percent in September, an increase of 1.5 percentage points when compared to the 55.5 percent reported for August, indicating growth in new export orders for the 19th consecutive month.
ISM’s Imports Index registered 54 percent in September, a decrease of 0.5 percentage point when compared to the 54.5 percent reported for August, indicating that imports are growing in September for the eighth consecutive month but at a slightly slower rate compared to August.
The ISM Prices Index registered 71.5 percent in September, an increase of 9.5 percentage points from the August level of 62 percent indicating an increase in raw materials prices for the 19th consecutive month. In September, 45 percent of respondents reported paying higher prices, 2 percent reported paying lower prices, and 53 percent of supply executives reported paying the same prices as in August. The Prices Index is at its highest level since May 2011, when it registered 76.5 percent.
“The Business Survey Committee noted price increases in many areas, including metals (steel and aluminum); food ingredients; electronic components; lumber and wood products; basic chemicals; and plastics,” comments Fiore. “The ongoing impacts from Hurricane Harvey are still largely unknown, and many respondents noted this uncertainty.”
A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.
ISM’s Employment Index registered 60.3 percent in September, an increase of 0.4 percentage point when compared to the August reading of 59.9 percent. This indicates growth in employment in September for the 12th consecutive month. Employment levels have been expanding since October 2016, and this month’s Index reading is the highest since June 2011, when it registered 61.3 percent.
An Employment Index above 50.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
The monthly Manufacturing ISM Report on Business is based on the survey results of approximately 350 professionals across 18 different industry sectors. The report is released on the first business day of each month and features the PMI Index as its key measure. For more information on the Institute for Supply Management, visit www.ism.ws.