According to the latest manufacturing report on business report from the Institute for Supply Management, economic activity in the manufacturing sector grew in September, with the overall economy notching a fifth consecutive month of growth.

“The September PMI registered 55.4 percent, down 0.6 percentage point from the August reading of 56 percent. This figure indicates expansion in the overall economy for the fifth month in a row after a contraction in April, which ended a period of 131 consecutive months of growth,” Timothy R. Fiore, CPSM, CPM, chair of the Institute for Supply Management manufacturing business survey committee, said. “The New Orders Index registered 60.2 percent, a decrease of 7.4 percentage points from the August reading of 67.6 percent. The Production Index registered 61 percent, down 2.3 percentage points compared to the August reading of 63.3 percent. The Backlog of Orders Index registered 55.2 percent, 0.6 percentage point higher compared to the August reading of 54.6 percent. The Employment Index registered 49.6 percent, an increase of 3.2 percentage points from the August reading of 46.4 percent. The Supplier Deliveries Index registered 59 percent, up 0.8 percentage point from the August figure of 58.2 percent.

“The Inventories Index registered 47.1 percent, 2.7 percentage points higher than the August reading of 44.4 percent. The Prices Index registered 62.8 percent, up 3.3 percentage points compared to the August reading of 59.5 percent. The New Export Orders Index registered 54.3 percent, an increase of one percentage point compared to the August reading of 53.3 percent. The Imports Index registered 54 percent, a 1.6 percentage point decrease from the August reading of 55.6 percent.

“After the coronavirus (COVID-19) pandemic brought manufacturing activity to historic lows, the sector continued its recovery in September. Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories and are becoming more proficient at maintaining output. Panel sentiment was optimistic (2.3 positive comments for every cautious comment), an improvement compared to August. Demand expanded, with the (1) New Orders Index growing at strong levels, supported by the New Export Orders Index expanding moderately; (2) Customers’ Inventories Index at its lowest figure since June 2010, a level considered a positive for future production; and the (3) Backlog of Orders Index expanding at a faster rate compared to the prior two months.

“Consumption (measured by the Production and Employment indexes) contributed positively (a combined 0.9-percentage point increase) to the PMI calculation, with five of the top six industries continuing to expand output strongly. Employment neared expansion territory for the first time since July 2019. Inputs — expressed as supplier deliveries, inventories and imports — continued to indicate input-driven constraints to further production expansion, but at slower rates compared to August. Inventory levels contracted again due to strong production output and supplier delivery difficulties. Overall, inputs improved compared to August and contributed positively to the PMI calculation. (The Supplier Deliveries and Inventories indexes directly factor into the PMI; the Imports Index does not). Prices continued to expand at higher rates, reflecting a continued shift to seller pricing power — a positive for new-order growth.

“Among the six biggest manufacturing industries, food, beverage [and] tobacco products remains the best-performing sector, with fabricated metal products and chemical products growing strongly. Computer [and] electronic products and transportation equipment expanded moderately. Petroleum [and] coal products remained a headwind to PMI performance.

“Manufacturing performed well in the month with demand, consumption and inputs registering growth indicative of a normal expansion cycle. While certain industry sectors are experiencing difficulties that will continue in the near term, the manufacturing community as a whole has learned to conduct business effectively and deal with the variables imposed by the COVID-19 pandemic.”

Of the 18 manufacturing industries, 14 reported growth in September, including machinery, transportation equipment and fabricated metal products. Apparel, leather and allied products; printing and related support activities; petroleum and coal products; and primary metals were the four industries that reported contraction in September.

What Respondents Are Saying

• “Still struggling with long lead times for components coming from China [contract manufacturers].” (Computer and Electronic Products)
• “Volume remains lower than one year ago but has steadily improved over the past two periods.” (Chemical Products)
• “Business is booming and the supply chain has been caught off guard. We are working closely with our suppliers to ensure supply and try to control costs. The resin industry, along with plastics, is driving cost increases and scarce availability.” (Transportation Equipment)
• “Our business has not begun to recover.” (Petroleum and Coal Products)
• “Overall business conditions are improving but not at the rates we saw them decline.” (Fabricated Metal Products)
• “Our customer order intake is increasing significantly for deliveries in the first half of 2021. Outlook is generally positive.” (Machinery)
• “Retail sales remain strong, but food service is still down about 15 percent year over All of our factories are still struggling with manning shifts due to positive COVID-19 cases and/or quarantine because employees came in contact with someone who contracted the virus.” (Food, Beverage and Tobacco Products)
• “Demand remains high, strong finish to 2020 projected, with an even stronger 2021 fiscal year. Prices have increased in certain categories, but no major price increases of our own have been implemented yet. We are seeing an uptick in reshoring opportunities in the third quarter across various industries and products.” (Electrical Equipment, Appliances and Components)
• “We are seeing a marked increase in international demand in Q4 compared to Q2 and Q3. Still not at historical levels; however, a positive outlook.” (Paper Products)
• “Raw material shortages, especially of hardwood logs, are starting to impact overall supply. Domestic market demand is fragmented but remains sound. Export demand, especially to China, is robust.” (Wood Products)
• “Business has continued to be strong, with September following August. October is also shaping up to be a good sales month as well.” (Plastics and Rubber Products)