September ISM Index Achieves Minimal Increase as Growth in Production Offset by Lower New Orders and Inventories

According to the latest ISM Manufacturing PMI Report, economic activity in the US manufacturing sector contracted in September for the seventh consecutive month, in spite of a 0.4 percent increase compared with August’s results. The Manufacturing PMI registered 49.1 percent in September compared with the reading of 48.7 percent recorded in August.

In terms of demand, one of the four demand indicators improved, with the Backlog of Orders Index showing a gain of 1.5 percentage points (which the ISM believes could be due to August’s increase in new orders), while the New Orders, New Export Orders, and Customers’ Inventories indexes contracted at faster rates. The New Orders Index figure of 48.9 percent is 2.5 percentage points lower than the 51.4 percent recorded in August. The New Export Orders Index reading of 43 percent is 4.6 percentage points lower than the reading of 47.6 percent registered in August, and Customer Inventories declined by 0.9 percent.

Regarding output, the Production and Employment indexes improved, though 64 percent of panelists’ comments still indicated that managing headcount is the norm at their companies as opposed to hiring. The September Production Index reading (51 percent) is 3.2 percentage points higher than August’s figure of 47.8 percent. The Employment Index registered 45.3 percent, up 1.5 percentage points from August’s figure of 43.8 percent.

Inputs (defined as supplier deliveries, inventories, prices, and imports), on net, moved further into contraction territory. The Supplier Deliveries Index registered 47.7 percent, down 1.7 percentage points. The Inventories Index registered 47.7 percent, down 1.7 percentage points compared with August’s reading of 49.4 percent, and the Prices Index remained in expansion (or ‘increasing’ territory), registering 61.9 percent, although down by 1.8 percentage points compared with the reading of 63.7 percent reported in August. The Imports Index registered 44.7 percent, 1.3 percentage points lower than August’s reading of 46 percent.

Sixty-seven percent of the manufacturing sector’s GDP contracted in September, down from 69 percent in August. Twenty-eight percent of GDP is strongly contracting (registering a composite PMI^® of 45 percent or lower), up from 4 percent in August. Of the six largest manufacturing industries, only one (Petroleum & Coal Products) expanded in September, compared with two in August.

The five manufacturing industries reporting growth in September are: Petroleum & Coal Products; Primary Metals; Textile Mills; Fabricated Metal Products; and Miscellaneous Manufacturing. The 11 industries reporting contraction in September—in the following order—are: Wood Products; Apparel, Leather & Allied Products; Plastics & Rubber Products; Paper Products; Furniture & Related Products; Chemical Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Nonmetallic Mineral Products; Machinery; and Computer & Electronic Products.

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