Latest Manufacturing Report From ISM Suggests Positive Change

Following three consecutive months of slight contraction, economic activity in the manufacturing sector expanded in September. Furthermore, the overall economy grew for the 40th consecutive month, said the nation’s supply executives in the latest Manufacturing ISM Report On Business.

This is a very positive development, and one which exceeded our expectations,” said Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee.

The PMI – the index used by ISM to measure manufacturing activity – registered 51.5 percent, an increase of 1.9 percentage points from August’s reading of 49.6 percent. According to Holcomb, this indicates a return to expansion after contracting for three consecutive months.

“The New Orders Index registered 52.3 percent, an increase of 5.2 percentage points from August, indicating growth in new orders after three consecutive months of contraction,” he said.

Meanwhile, the Production Index registered 49.5 percent, an increase of 2.3 percentage points and indicating contraction in production for the second time since May 2009.

Holcomb was especially encouraged by the Employment Index, which increased by 3.1 percentage points, registering 54.7 percent.

“The fact that some companies are beginning to once again is very good news,” he said.

The Prices Index increased 4 percentage points from its August reading to 58 percent.

Nigel Gault, an economist with IHS Global Insight, said ISM’s headline index showed a “welcome improvement” in September, moving above the breakeven 50-mark for the first time since May.

“The most important signal was from orders, which rose for the first time since May,” he said.

Gault also noted that all of the growth in orders came on the domestic side, because export orders declined again.

“Order backlogs are still dropping, but the improvement in domestic orders was a step in the right direction,” he said. “Cost pressures mounted further, led by higher prices for drought-related corn, and petroleum products.”

Both Gault and Holcomb agree that manufacturing continues to hold up better in the U.S. than in the rest of the world. But it is still under pressure from global economic headwinds and domestic policy uncertainty, and overall growth in output and employment is likely to remain at a very modest pace.

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