| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Index | 47.6 | 47.0 to 48.5 | 47.2 | 47.2 |
Highlights
US manufacturing activity was in contraction for the sixth straight month in September on continued sluggish demand as firms remain reluctant to invest in capacity amid uncertainty over the pace of the Federal Reserve's unwinding of its tight monetary policy and the outcome of the presidential election next month, the latest monthly data from the Institute for Supply Management showed.
The sector index compiled by the ISM, which indicates general direction, was flat at 47.2 after edging up 0.4 point to 47.2 in August. The latest reading came in slightly weaker than the median economist forecast of 47.6.
"Demand remains subdued, as companies showed an unwillingness to invest in capital and inventory due to federal monetary policy - which the US Federal Reserve addressed by the time of this report - and election uncertainty," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement."Production execution stabilized in September. Suppliers continue to have capacity, with lead times improving and shortages reappearing."
The full impact of the damage caused by Hurricane Helene massive disruptions of supply chains and production of plastics and steel, particularly the Gulf coast is expected to show in the ISM's October report, which is likely to be a"cloudy" one.
He told reporters that the rate cut by the Federal Reserve in September is likely to give a boost to the sector in early 2025. He has said the expected first rate cut in four years by the Fed was unlikely to push up new orders for several months. He repeated his conviction that the manufacturing sector is stuck in a temporary trough.
Fiore said 13 percent of the manufacturers surveyed by the ISM is showing concern over Fed rate policy in the latest monthly report, up from 5% five months ago. Asked about uncertainty over US election results regarding trade rows with China, he said he does not see a huge difference between the Democrats and Republicans, so that whichever party wins, the pressure on China is set to continue.
Among the five subindexes that directly factor into the manufacturing PMI, the new orders index contracted in September for the sixth consecutive month, registering 46.1, an increase of 1.5 percentage points compared to August's figure of 44.6. It hasn't indicated consistent growth since a 24-month streak of expansion ended in May 2022. The production index rose 5.0 points to 49.8 after slipping to 44.8 in August to remain the lowest since 34.2 in May 2020, when world demand plunged at the initial phase of the pandemic.
The employment index stood at 43.9, down 2.1 points from 46.0 in August."Respondents' companies are continuing to reduce head counts through layoffs, attrition and hiring freezes," Fiore said. Asked about Fed Chair Jerome Powell's latest assessment that the labor market is slowing but still strong, Fiore replied that the Fed chief is talking about the entire US economy while the manufacturing sector, which represents only 10% of the economy, has seen sluggish employment.
The supplier deliveries index rose 1.7 points to 52.2. 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 slipped back below the neutral line of 50, down 6.4 points at 43.9 after rising 5.8 to 50.3 in August, when it popped into expansion territory for the first time in 19 months.
Among other subindexes, the prices paid index was at 48.3, down 5.7 points from the August reading of 54.0, thanks to less volatile commodity prices. Petroleum-derived products are showing weakness, aluminum is indicating slowing growth, corrugate and ocean freight are continuing growth and steel and steel products prices are easing.
The sector index compiled by the ISM, which indicates general direction, was flat at 47.2 after edging up 0.4 point to 47.2 in August. The latest reading came in slightly weaker than the median economist forecast of 47.6.
"Demand remains subdued, as companies showed an unwillingness to invest in capital and inventory due to federal monetary policy - which the US Federal Reserve addressed by the time of this report - and election uncertainty," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement."Production execution stabilized in September. Suppliers continue to have capacity, with lead times improving and shortages reappearing."
The full impact of the damage caused by Hurricane Helene massive disruptions of supply chains and production of plastics and steel, particularly the Gulf coast is expected to show in the ISM's October report, which is likely to be a"cloudy" one.
He told reporters that the rate cut by the Federal Reserve in September is likely to give a boost to the sector in early 2025. He has said the expected first rate cut in four years by the Fed was unlikely to push up new orders for several months. He repeated his conviction that the manufacturing sector is stuck in a temporary trough.
Fiore said 13 percent of the manufacturers surveyed by the ISM is showing concern over Fed rate policy in the latest monthly report, up from 5% five months ago. Asked about uncertainty over US election results regarding trade rows with China, he said he does not see a huge difference between the Democrats and Republicans, so that whichever party wins, the pressure on China is set to continue.
Among the five subindexes that directly factor into the manufacturing PMI, the new orders index contracted in September for the sixth consecutive month, registering 46.1, an increase of 1.5 percentage points compared to August's figure of 44.6. It hasn't indicated consistent growth since a 24-month streak of expansion ended in May 2022. The production index rose 5.0 points to 49.8 after slipping to 44.8 in August to remain the lowest since 34.2 in May 2020, when world demand plunged at the initial phase of the pandemic.
The employment index stood at 43.9, down 2.1 points from 46.0 in August."Respondents' companies are continuing to reduce head counts through layoffs, attrition and hiring freezes," Fiore said. Asked about Fed Chair Jerome Powell's latest assessment that the labor market is slowing but still strong, Fiore replied that the Fed chief is talking about the entire US economy while the manufacturing sector, which represents only 10% of the economy, has seen sluggish employment.
The supplier deliveries index rose 1.7 points to 52.2. 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 slipped back below the neutral line of 50, down 6.4 points at 43.9 after rising 5.8 to 50.3 in August, when it popped into expansion territory for the first time in 19 months.
Among other subindexes, the prices paid index was at 48.3, down 5.7 points from the August reading of 54.0, thanks to less volatile commodity prices. Petroleum-derived products are showing weakness, aluminum is indicating slowing growth, corrugate and ocean freight are continuing growth and steel and steel products prices are easing.
Market Consensus Before Announcement
US manufacturing activity is expected to be in contraction for a sixth straight month in September on continued sluggish demand as firms remain reluctant to invest in capacity amid uncertainty over the pace of the Federal Reserve's unwinding of its tight monetary policy and the outcome of the presidential election next month.
The sector index compiled by the Institute for Supply Management, which indicates general direction, is forecast to rise just 0.4 percentage point to 47.6 after edging up 0.4 point to 47.2 in August. Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, has said that even if the Federal Reserve lowered its policy interest rate in September, new orders were unlikely to pick up for several months.
The sector index compiled by the Institute for Supply Management, which indicates general direction, is forecast to rise just 0.4 percentage point to 47.6 after edging up 0.4 point to 47.2 in August. Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, has said that even if the Federal Reserve lowered its policy interest rate in September, new orders were unlikely to pick up for several months.
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.
