September manufacturing data is down slightly, reports ISM

Manufacturing growth output saw a slight decline for the third straight month while still remaining in growth mode, according to the September edition of the Institute for Supply Management's September edition of its Manufacturing Report on Business.

The PMI, the ISM's index to measure growth, was 50.2 in September (a reading of 50 or higher signals growth), which was down 0.9 percent from August's 51.1. The PMI has been at 50 or above for 33 consecutive months, with the over all economy growing for 76 straight months. The current PMI reading is 3.2 percent the 12-month average of 53.4 and is its lowest reading going back to May 2013, when it was at 50.1.

Each of the report's four key metrics, including the PMI, was down in September, as was the case in August. New orders, which are often referred to as the engine driving manufacturing, dropped 1.6 percent to 50.1 while still growing for the 34th straight month, albeit at a slower rate, while at its lowest level since November 2012. Production fell 1.8 percent to 51.8 and grew for the 37th month in a row, and employment dipped 0.7 percent to 50.5 and grew for the fifth consecutive month.

The ISM said that seven of the 18 manufacturing sectors contributing to the report saw growth in September, down from ten in August.

Comments submitted to the report by ISM member respondents were consistent with the report's theme of slower growth for the most part.

A chemical products respondent said that its North American business is steady, with its international business trending bearish, and a computer and electronic products respondent observed how the high value of the dollar is affecting global procurement pricing.

“This is certainly an interesting report, which is obviously soft in terms of PMI, with a lot of contributing factors,” said Brad Holcomb, chair of the ISM Manufacturing Survey Business Committee. “We are definitely in a low point here.

Holcomb said that the 1.8 percent decline in production was driven by current employment levels and asset availability, with a lack of new order growth subsequently digging into September's backlog of orders, which saw a 5.0 percent drop to 41.5. And inventories were flat at 48.5 while contracting for the third straight month, while customer inventories rose 1.5 percent to 54.5 to its highest level since January 2009.

“There are a lot of things to be thinking about regarding the strength or lack of strength of manufacturing relative to the last month, but we are still growing,” said Holcomb. “There is some concern and uncertainty in the comments of the report, with the Fed keeping us guessing about interest rates, China is worrisome, and general uncertainty of economic direction. Those are more statements of concern as opposed to an analysis of fundamentals, which are still strong.”

Holcomb said that over recent years the period since the recession, when the PMI popped back up over 50 in July 2009, resembles two humps of a camel's back. The first hump starts in July 2009, when the PMI went up to nearly 60 and dropped below 50 in November 2012.

Things started to go up again from that point, which created the next camel hump, with current numbers now on the downside of that hump.

“We already have history that we pulled out of a situation like this post-2008, so there is reason to be optimistic in the form of a nice fourth quarter going forward,” said Holcomb. “I am optimistic about future growth, and I think manufacturing is ready for that.”

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