The PMI surprised on the upside in September. At 53.2 the headline index was 2.2 points firmer versus its unrevised August reading and at its highest level since May.
The increase reflected gains in most areas outside of production although, down 1.8 points at 52.8, this still registered positive growth, and employment (down 1.2 points at 47.0). Backlogs (up 4.4 points at 55.2) and delivery times (up 3.6 points at 57.9) moved nicely in the right direction and stocks of purchases (up 10.1 points at 53.2) similarly pointed to improved business morale. Purchase prices (up 1.2 points at 49.9) saw their strongest reading in four months.
Overall the September results are quite promising. However, for the third quarter as a whole the PMI stood at just 51.4, only indicating a sluggish rise in economic activity and well short of the previous period's 54.0. Third quarter real GDP growth looks unlikely to get anywhere close to the 0.6 percent rate achieved in the April-June quarter.
The Association for Purchasing and Supply Management's Purchasing Managers' Index (PMI) is produced in conjunction with Credit Suisse. The PMI provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector of purchasing managers. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting).
The PMI is very sensitive to the business cycle and tends to match growth or decline in the economy as a whole. To construct the PMI the Swiss Association of Purchasing and Materials Management conducts monthly surveys of purchasing executives on their performance in the current month versus the previous period. Because the amount of materials ordered by purchasing managers parallels the level of manufacturing production, the PMI is a gauge of production growth. The results are indexed with a centerline of 50; values above 50 indicate expectations of expansion and values below 50 indicate expectations of contraction for the manufacturing sector.
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