Economic activity in the manufacturing sector contracted in September for the seventh consecutive month, following a two-month expansion preceded by 26 straight months of contraction, say the nation’s supply executives in the latest ISM Manufacturing PMI Report.
The report was issued by Susan Spence, chair of the Institute for Supply Management (ISM) manufacturing business survey committee.
“The Manufacturing PMI registered 49.1% in September, a 0.4-percentage point increase compared to the reading of 48.7% recorded in August. The overall economy continued in expansion for the 65th month after one month of contraction in April 2020. (A Manufacturing PMI above 42.3%, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index contracted in September following one month of growth; the figure of 48.9% is 2.5 percentage points lower than the 51.4% recorded in August. The September reading of the Production Index (51%) is 3.2 percentage points higher than August’s figure of 47.8%. The Prices Index remained in expansion (or ‘increasing’ territory), registering 61.9%, down 1.8 percentage points compared to the reading of 63.7% reported in August. The Backlog of Orders Index registered 46.2%, up 1.5 percentage points compared to the 44.7% recorded in August. The Employment Index registered 45.3%, up 1.5 percentage points from August’s figure of 43.8%,” Spence said. “The Supplier Deliveries Index indicated slower delivery performance for the second consecutive month after one month in ‘faster’ territory, which was preceded by seven consecutive months in ‘slower’ territory. The reading of 52.6% is up 1.3 percentage points from the 51.3% recorded in August. (Supplier Deliveries is the only ISM PMI Reports index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 47.7%, down 1.7 percentage points compared to August’s reading of 49.4%.”
Spence continued, “The New Export Orders Index reading of 43% is 4.6 percentage points lower than the reading of 47.6% registered in August. The Imports Index registered 44.7%, 1.3 percentage points lower or than August’s reading of 46%. In September, U.S. manufacturing activity contracted at a slightly slower rate, with production growth the biggest factor in the 0.4-percentage point gain of the Manufacturing PMI. However, the combined drops in the New Orders and Inventories indexes (4.2 percentage points) exceeded the increase in the Production Index (3.2), rendering the Manufacturing PMI improvement negligible. Last month’s increase in new orders (an index gain of 4.3 percentage points from July to August) seems to have flowed through to production but does not appear to be sustainable given the subsequent drop in new orders in September.”
Spence added, “One of the four demand indicators improved, with the Backlog of Orders Index showing a gain of 1.5 percentage points (which could be due to August’s increase in new orders, cited above), while the New Orders, New Export Orders and Customers’ Inventories indexes contracted at faster rates. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production. Regarding output, the Production and Employment indexes improved, though 64% of panelists’ comments still indicated that managing head count is still the norm at their companies, as opposed to hiring.”
Spence concluded, “Finally, inputs (defined as supplier deliveries, inventories, prices and imports), on net, moved further into contraction territory. The Supplier Deliveries Index indicated slower deliveries, the Inventories Index worsened, and the Prices Index continued to increase, but at a slower rate. The Imports Index moved further into contraction. Looking at the manufacturing economy, 67% of the sector’s gross domestic product (GDP) contracted in September, down from 69% in August. Twenty-eight% of GDP is strongly contracting (registering a composite PMI of 45% or lower), up from 4% in August. The share of sector GDP with a PMI at or below 45% is a good metric to gauge overall manufacturing weakness. Of the six largest manufacturing industries, only one (Petroleum & Coal Products) expanded in September, compared to two in August.”
The five manufacturing industries reporting growth in September are:
- Petroleum and coal products
- Primary metals
- Textile mills
- Fabricated metal products
- Miscellaneous manufacturing
The 11 industries reporting contraction in September — in the following order — are:
- Wood products
- Apparel, leather and allied products
- Plastics and rubber products
- Paper products
- Furniture and related products
- Chemical products
- Electrical equipment, appliances and components
- Transportation equipment
- Nonmetallic mineral products
- Machinery
- Computer and electronic products
