| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Index | 47.8 | 47.2 to 50.0 | 49.0 | 47.6 |
Highlights
US manufacturing activity was in contraction territory for the 11th straight month in September but the pace of overall slowdown continued to ease, taking the main index to a 10-month high thanks to higher new orders and production as well as a surprise pickup in employment, data from the Institute for Supply Management released Monday showed.
The sector index compiled by the ISM, which shows general direction, rose 1.4 percentage points to 49.0, the highest since November 2022 (49.0), after rising 1.2 points to a six-month high of 47.6 in August, which was led by upticks in production and employment. It followed a 0.4-point rise to 46.4 in July and a 0.9-point fall to 46.0 in June. The latest figure is above the median economist forecast of 47.8 but as it was below 50, indicates contraction in the sector.
The index has been on a gradual downtrend since June 2022 but it seems to have hit a bottom in June at 46.0, which was the lowest since May 2020, when the index at 43.5 was recovering from a recent low of 41.8 the previous month during the first wave of the pandemic. The all-time low is 29.4 hit in May 1980.
"The US manufacturing sector continued its contraction trend but at a slower rate, recording its best performance since November 2022," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement."Companies are still managing outputs appropriately as order softness continues, but the month-over-month PMI improvement in September is a clear positive."
To assess the overall economic climate, the latest figure indicates"weak" growth after nine months of contraction and a 30-month period of expansion. The ISM's manufacturing PMI reading above 48.7, over time, generally indicates an expansion of the US economy.
Fiore told reporters that the US manufacturing sector seems to have hit a bottom, judging from the ISM purchasing managers' index.
"Overall, this report indicates that we are well off the bottom now; the bottom was probably 46 or so," he said."We are now slowly recovering. We are very close to a stable month in September compared to August."
Asked whether a comment on"an imminent recession" in the September survey is an isolated case, Fiore replied that it probably came from a struggling industry that is facing more headwinds than the rest of the surveyed industries."A lot of comments are feelings based on what they are reading and what they are hearing, so I normally don't include many of those," he said.
A firm from the petroleum and coal products industry told the ISM,"A recession feels imminent. Money continues to be pushed into the bank markets, driving inflation rates really high. Most plants are buying less material or reducing consumption in the name of sustainability, as well as running at 80 percent of capacity."
Fiore said the uptick in the employment subindex to a four-month high and back in growth territory was"a bit of a surprise." He explained that attrition remained the primary source of head-count reductions in September but hiring freezes were more prevalent. In other areas, stronger production led to a reduction of backlog orders, he said. Supply deliveries were surprisingly faster but was in reaction to a slow month of August when some operations were shut down for summer breaks (no seasonal adjustments are made), he said.
The prices paid subindex dropped in September after a jump in August but Fiore said it is unlikely to ease much further.
"I have a feeling that the price pressure is now imminent in the near future here due to the energy markets with the $100 a barrel of (crude) oil," he said."We are probably going to feel a lot of price pressure on things other than energy."
Asked if the market expectation for higher interest rates for a longer period is a source of concern in any industries, Fiore said,"I think so. It impacts demand." Machinery makers, for example, will be hit as it requires heavy capital, he said.
The September survey showed that 71 percent of manufacturing gross domestic product GDP contracted, up from 62 percent in August but down from 92 percent in July, a positive trend for the economy, Fiore said. More importantly, he added, the share of sector GDP registering a composite PMI calculation at or below 45 -- a good barometer of overall manufacturing weakness -- was 6 in September, compared to 15 in August and 25 in July, which is a clearly positive sign.
Among the five subindexes that directly factor into the manufacturing PMI, the new orders Index contracted for the 13th consecutive month, saying below the neutral line of 50, but it rose 2.4 percentage point to 49.2 in September (the highest since 50.4 in August 2022) after dipping 0.5 point to 46.8 in August, rising 1.7 points to 47.3 in July and 3.0 points to 45.6 in June and plunging 3.1 points to a four-month low of 42.6 in May.
The production index reading of 52.5 in September is a 2.5-percentage point increase from 50.0 in August, when it rose 1.7 points, after rising 1.6 points to 48.3 in July.
The employment index was in expansion for the first time in four months. It rose 2.7 points to 51.2 in September after rising 4.1 points to 48.5 in August and slipping to a three-year low of 44.4 in July. Previously, the index rose 1.2 points to 51.4 in May after popping into expansion territory for the first time in four months in April at 50.2. An employment index above 50.4, over time, is generally consistent with an increase in the Bureau of Labor Statistics data on manufacturing employment.
The delivery performance of suppliers to manufacturing organizations was faster for the 12th straight month amid generally improving supply chains. The supplier deliveries index at 46.4 is a 2.2-point drop from 48.6 in August. The May figure of 43.5 is the lowest since 43.2 in March 2009. This is the only ISM subindex that is inversed; a reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
The manufacturing inventories index rose 1.8 points to 45.8 in September after falling 2.1 points to 44.0 in August and posting its first rise in seven months in July with a 2.1-point gain. The index at 44.0 in June is the lowest since 43.9 in January 2014.
Among other subindexes, the customers' inventories index fell 1.6 points to 47.1 in September after being unchanged at 48.7 in August and rising 2.5 points in July. It remains"too low" after plunging 5.2 points to a"too low" level of 46.2 in June (an eight-month low) from a"too High" level of 51.4 in May. The May figure is the highest in more than six years since September 2016, when it registered 52.5. The all-time high is 56.0 hit in January 2001.
The prices index indicated decreases for the fifth consecutive month. It fell 4.6 points to 43.8 in September after rising 5.8 points to 48.4 in August and edging up 0.8 point to 42.6 in July. It has stayed below the key 50 level after falling 2.4 points to a six-month low of 41.8 in June and slumping 9.0 points to 44.2 in May.
The backlog orders index slipped 1.7 points to 42.4 in September after rising 1.3 points to 44.1 in August and climbing 4.1 points to 42.8 in July. It followed a 1.2-point gain to 38.7 in June and a 5.6-point drop to 37.5 in May, which is the lowest since the Great Recession (33.6 in February 2009).
The new export orders index was in contraction for the fourth straight month. It rose 0.9 point to 47.4 in September after edging up 0.3 point to 46.5 in August and falling 1.1 points to 46.2 in July, slipping 2.7 points to 47.3 in June and edging up 0.2 point to the neutral level of 50.0 in May, which was preceded by nine straight months in contraction territory and 25 months of expansion from July 2020 to July 2022.
The sector index compiled by the ISM, which shows general direction, rose 1.4 percentage points to 49.0, the highest since November 2022 (49.0), after rising 1.2 points to a six-month high of 47.6 in August, which was led by upticks in production and employment. It followed a 0.4-point rise to 46.4 in July and a 0.9-point fall to 46.0 in June. The latest figure is above the median economist forecast of 47.8 but as it was below 50, indicates contraction in the sector.
The index has been on a gradual downtrend since June 2022 but it seems to have hit a bottom in June at 46.0, which was the lowest since May 2020, when the index at 43.5 was recovering from a recent low of 41.8 the previous month during the first wave of the pandemic. The all-time low is 29.4 hit in May 1980.
"The US manufacturing sector continued its contraction trend but at a slower rate, recording its best performance since November 2022," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement."Companies are still managing outputs appropriately as order softness continues, but the month-over-month PMI improvement in September is a clear positive."
To assess the overall economic climate, the latest figure indicates"weak" growth after nine months of contraction and a 30-month period of expansion. The ISM's manufacturing PMI reading above 48.7, over time, generally indicates an expansion of the US economy.
Fiore told reporters that the US manufacturing sector seems to have hit a bottom, judging from the ISM purchasing managers' index.
"Overall, this report indicates that we are well off the bottom now; the bottom was probably 46 or so," he said."We are now slowly recovering. We are very close to a stable month in September compared to August."
Asked whether a comment on"an imminent recession" in the September survey is an isolated case, Fiore replied that it probably came from a struggling industry that is facing more headwinds than the rest of the surveyed industries."A lot of comments are feelings based on what they are reading and what they are hearing, so I normally don't include many of those," he said.
A firm from the petroleum and coal products industry told the ISM,"A recession feels imminent. Money continues to be pushed into the bank markets, driving inflation rates really high. Most plants are buying less material or reducing consumption in the name of sustainability, as well as running at 80 percent of capacity."
Fiore said the uptick in the employment subindex to a four-month high and back in growth territory was"a bit of a surprise." He explained that attrition remained the primary source of head-count reductions in September but hiring freezes were more prevalent. In other areas, stronger production led to a reduction of backlog orders, he said. Supply deliveries were surprisingly faster but was in reaction to a slow month of August when some operations were shut down for summer breaks (no seasonal adjustments are made), he said.
The prices paid subindex dropped in September after a jump in August but Fiore said it is unlikely to ease much further.
"I have a feeling that the price pressure is now imminent in the near future here due to the energy markets with the $100 a barrel of (crude) oil," he said."We are probably going to feel a lot of price pressure on things other than energy."
Asked if the market expectation for higher interest rates for a longer period is a source of concern in any industries, Fiore said,"I think so. It impacts demand." Machinery makers, for example, will be hit as it requires heavy capital, he said.
The September survey showed that 71 percent of manufacturing gross domestic product GDP contracted, up from 62 percent in August but down from 92 percent in July, a positive trend for the economy, Fiore said. More importantly, he added, the share of sector GDP registering a composite PMI calculation at or below 45 -- a good barometer of overall manufacturing weakness -- was 6 in September, compared to 15 in August and 25 in July, which is a clearly positive sign.
Among the five subindexes that directly factor into the manufacturing PMI, the new orders Index contracted for the 13th consecutive month, saying below the neutral line of 50, but it rose 2.4 percentage point to 49.2 in September (the highest since 50.4 in August 2022) after dipping 0.5 point to 46.8 in August, rising 1.7 points to 47.3 in July and 3.0 points to 45.6 in June and plunging 3.1 points to a four-month low of 42.6 in May.
The production index reading of 52.5 in September is a 2.5-percentage point increase from 50.0 in August, when it rose 1.7 points, after rising 1.6 points to 48.3 in July.
The employment index was in expansion for the first time in four months. It rose 2.7 points to 51.2 in September after rising 4.1 points to 48.5 in August and slipping to a three-year low of 44.4 in July. Previously, the index rose 1.2 points to 51.4 in May after popping into expansion territory for the first time in four months in April at 50.2. An employment index above 50.4, over time, is generally consistent with an increase in the Bureau of Labor Statistics data on manufacturing employment.
The delivery performance of suppliers to manufacturing organizations was faster for the 12th straight month amid generally improving supply chains. The supplier deliveries index at 46.4 is a 2.2-point drop from 48.6 in August. The May figure of 43.5 is the lowest since 43.2 in March 2009. This is the only ISM subindex that is inversed; a reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
The manufacturing inventories index rose 1.8 points to 45.8 in September after falling 2.1 points to 44.0 in August and posting its first rise in seven months in July with a 2.1-point gain. The index at 44.0 in June is the lowest since 43.9 in January 2014.
Among other subindexes, the customers' inventories index fell 1.6 points to 47.1 in September after being unchanged at 48.7 in August and rising 2.5 points in July. It remains"too low" after plunging 5.2 points to a"too low" level of 46.2 in June (an eight-month low) from a"too High" level of 51.4 in May. The May figure is the highest in more than six years since September 2016, when it registered 52.5. The all-time high is 56.0 hit in January 2001.
The prices index indicated decreases for the fifth consecutive month. It fell 4.6 points to 43.8 in September after rising 5.8 points to 48.4 in August and edging up 0.8 point to 42.6 in July. It has stayed below the key 50 level after falling 2.4 points to a six-month low of 41.8 in June and slumping 9.0 points to 44.2 in May.
The backlog orders index slipped 1.7 points to 42.4 in September after rising 1.3 points to 44.1 in August and climbing 4.1 points to 42.8 in July. It followed a 1.2-point gain to 38.7 in June and a 5.6-point drop to 37.5 in May, which is the lowest since the Great Recession (33.6 in February 2009).
The new export orders index was in contraction for the fourth straight month. It rose 0.9 point to 47.4 in September after edging up 0.3 point to 46.5 in August and falling 1.1 points to 46.2 in July, slipping 2.7 points to 47.3 in June and edging up 0.2 point to the neutral level of 50.0 in May, which was preceded by nine straight months in contraction territory and 25 months of expansion from July 2020 to July 2022.
Market Consensus Before Announcement
The ISM manufacturing index has been in long contraction. September's consensus is 47.8 versus August's 47.6.
Definition
The manufacturing composite index from the Institute for Supply Management is a diffusion index calculated from five of the eleven sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms nationwide. The survey queries purchasing managers about the general direction (tracked in volumes) of production, new orders, order backlogs, their own inventories, customer inventories, employment, supplier deliveries, exports, and imports. Data on changes in input prices (prices paid) are also tracked. The five components of the composite index are new orders, production, employment, supplier deliveries, and inventories (their own, not customer inventories). The five components are equally weighted. The questions are qualitative rather than quantitative; that is, they ask about the general direction rather than the specific level of activity. Each question is adjusted into a diffusion index which is calculated by adding the percentage of positive responses to one-half of the unchanged responses.
Description
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM manufacturing index, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
The ISM manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provide insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data. As a result, the bond market is highly sensitive to this report.
Importance
The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is enhanced by the fact that it is available very early in the month and is not subject to revision.
Interpretation
The bond market will rally (fall) when the ISM manufacturing index is weaker (stronger) than expected. Equity markets prefer lower interest rates and could rally with the bond market. However, a healthy manufacturing sector, indicated by rising ISM index levels, bodes well for corporate earnings and is bullish for the stock market.
The level of the ISM manufacturing index indicates whether manufacturing and the overall economy are growing or declining. Historically, readings of 50 percent or above are associated with an expanding manufacturing sector and healthy GDP growth overall. Readings below 50 indicate a contracting manufacturing sector but overall GDP growth is still positive until the ISM index falls below 42.5 (based on statistics through January 2011). Readings in between these two levels suggest that manufacturing is declining while GDP is still growing but only very slowly.
In addition to the ISM manufacturing composite index, the various sub-components contain useful information about manufacturing activity. The production component is related to industrial production, new orders to durable goods orders, employment to factory payrolls, prices to producer prices, export orders to merchandise trade exports and import orders to merchandise imports.
Vendor (supplier) deliveries are an important component of report. The more slowly orders are filled and delivered, the stronger the economic growth and the greater the potential for inflation. When orders are filled quickly, it means that producers don't have as many to fill.
The ISM manufacturing composite index and its sub-components can be subject to some monthly volatility, making the three-month average of the monthly levels more indicative of the trend.
The ISM manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provide insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data. As a result, the bond market is highly sensitive to this report.
Importance
The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is enhanced by the fact that it is available very early in the month and is not subject to revision.
Interpretation
The bond market will rally (fall) when the ISM manufacturing index is weaker (stronger) than expected. Equity markets prefer lower interest rates and could rally with the bond market. However, a healthy manufacturing sector, indicated by rising ISM index levels, bodes well for corporate earnings and is bullish for the stock market.
The level of the ISM manufacturing index indicates whether manufacturing and the overall economy are growing or declining. Historically, readings of 50 percent or above are associated with an expanding manufacturing sector and healthy GDP growth overall. Readings below 50 indicate a contracting manufacturing sector but overall GDP growth is still positive until the ISM index falls below 42.5 (based on statistics through January 2011). Readings in between these two levels suggest that manufacturing is declining while GDP is still growing but only very slowly.
In addition to the ISM manufacturing composite index, the various sub-components contain useful information about manufacturing activity. The production component is related to industrial production, new orders to durable goods orders, employment to factory payrolls, prices to producer prices, export orders to merchandise trade exports and import orders to merchandise imports.
Vendor (supplier) deliveries are an important component of report. The more slowly orders are filled and delivered, the stronger the economic growth and the greater the potential for inflation. When orders are filled quickly, it means that producers don't have as many to fill.
The ISM manufacturing composite index and its sub-components can be subject to some monthly volatility, making the three-month average of the monthly levels more indicative of the trend.
