ISM: New Orders, Production Push Manufacturing Back To Growth Territory

Economic activity in the manufacturing sector expanded in September following one month of contraction in August, and the overall economy grew for the 88th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

Mnet 192307 Manufacturing Ap

Economic activity in the manufacturing sector expanded in September following one month of contraction in August, and the overall economy grew for the 88th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

Manufacturing expanded in September as the PMI registered 51.5 percent, an increase of 2.1 percentage points from the August reading of 49.4 percent, indicating growth in manufacturing following one month of contraction. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

Mnet 192306 Ism September Chart

Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee states, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through September (50.9 percent) corresponds to a 2.4 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI for September (51.5 percent) is annualized, it corresponds to a 2.6 percent increase in real GDP annually.”

A PMI above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the September PMI indicates growth for the 88th consecutive month in the overall economy, and indicates growth in the manufacturing sector following one month of contraction.

Orders, Production and Inventory

ISM’s New Orders Index registered 55.1 percent in September, which is an increase of 6 percentage points when compared to the 49.1 percent reported for August, indicating growth in new orders following one month of contraction. A New Orders Index above 52.2 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 52.8 percent in September, which is an increase of 3.2 percentage points when compared to the 49.6 percent reported for August, indicating growth in production in September following one month of contraction. An index above 51.3 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The Inventories Index registered 49.5 percent in September, which is an increase of 0.5 percentage point when compared to the 49 percent reported for August, indicating raw materials inventories are contracting in September for the 15th consecutive month. An Inventories Index greater than 42.8 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 49.5 percent in September, an increase of 4 percentage points when compared to the August reading of 45.5 percent, indicating contraction in order backlogs for the third consecutive month. Of the 87 percent of respondents who reported their backlog of orders, 19 percent reported greater backlogs, 20 percent reported smaller backlogs, and 61 percent reported no change from August.

Exports, Imports and Prices

ISM’s New Export Orders Index registered 52 percent in September, a decrease of 0.5 percentage point when compared to the 52.5 percent reported for August, indicating growth in new export orders for the seventh consecutive month.

ISM’s Imports Index registered 49 percent in September, which is 2 percentage points above the August reading of 47 percent. This month’s reading indicates contraction in imports for the second consecutive month.

The ISM Prices Index registered 53 percent in September, the same reading as reported for August, indicating an increase in raw materials prices for the seventh consecutive month. In September, 20 percent of respondents reported paying higher prices, 14 percent reported paying lower prices, and 66 percent of supply executives reported paying the same prices as in August. 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.

Employment

ISM’s Employment Index registered 49.7 percent in September, an increase of 1.4 percentage points when compared to the August reading of 48.3 percent, indicating contraction in employment in September for the third consecutive month. An Employment Index above 50.6 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.

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