September 2017 Manufacturing ISM Report on Business; PMI at 60.8%

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Economic activity in the manufacturing sector expanded in September, and the overall economy grew for the 100th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report on Business.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee: "The September PMI registered 60.8%, an increase of 2 percentage points from the August reading of 58.8%. The New Orders Index registered 64.6%, an increase of 4.3 percentage points from the August reading of 60.3%. The Production Index registered 62.2%, a 1.2 percentage point increase compared to the August reading of 61%. The Employment Index registered 60.3%, an increase of 0.4 percentage point from the August reading of 59.9%. The Supplier Deliveries Index registered 64.4%, a 7.3 percentage point increase from the August reading of 57.1%. The Inventories Index registered 52.5%, a decrease of 3 percentage points from the August reading of 55.5%. The Prices Index registered 71.5% in September, a 9.5 percentage point increase from the August level of 62, indicating higher raw materials prices for the 19th consecutive month. Comments from the panel reflect expanding business conditions, with new orders, production, employment, order backlogs and export orders all growing in September; as well as, supplier deliveries slowing (improving) and inventories growing at a slower rate during the period. The Customers’ Inventories Index remains at low levels."

September 2017 Manufacturing Index Summaries

PMI

Manufacturing expanded in September as the PMI registered 60.8 percent, an increase of 2 percentage points from the August reading of 58.8 percent. This indicates growth in manufacturing for the 13th consecutive month and is the highest reading since May 2004, when the index registered 61.4 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI above 43.3 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the September PMI indicates growth for the 100th consecutive month in the overall economy and the 13th straight month of growth in the manufacturing sector. Fiore says, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through September (57.1%) corresponds to a 4.4% increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI for September (60.8%) is annualized, it corresponds to a 5.5% increase in real GDP annually."

New Orders

ISM's New Orders Index registered 64.6% in September, which is an increase of 4.3 percentage points when compared to the 60.3% reported for August, indicating growth in new orders for the 13th consecutive month. "Order input continues at a strong pace averaging 61.6% since December 2016 setting the pace for production activity," says Fiore. A New Orders Index above 52.3% , over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

Production

ISM's Production Index registered 62.2% in September, which is an increase of 1.2 percentage points when compared to the 61.0% reported for August, indicating growth in production for the 13th consecutive month. "Production remains at strong growth levels in most industries, in spite of weather conditions and supplier delivery constraints experienced during the period," says Fiore. An index above 51.4% , over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

Employment

ISM's Employment Index registered 60.3% in September, an increase of 0.4 percentage point when compared to the August reading of 59.9%. This indicates growth in employment in September for the 12th consecutive month. Employment levels have been expanding since October 2016, and this month’s Index reading is the highest since June 2011, when it registered 61.3%. An Employment Index above 50.5% , over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower in September, as the Supplier Deliveries Index registered 64.4%. This is 7.3 percentage points higher than the 57.1% reported for August. This is the 17th straight month of slowing supplier deliveries, and the index achieved its highest level since July 2004, when it registered 64.5 percent. A reading below 50% indicates faster deliveries, while a reading above 50% indicates slower deliveries.

Inventories

The Inventories Index registered 52.5% in September, which is a decrease of 3 percentage points when compared to the 55.5% reported for August, indicating raw materials inventories grew in September compared to August, but at a slower rate. An Inventories Index greater than 42.9%, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

Customers' Inventories

ISM's Customers’ Inventories Index registered 42% in September, which is 1 percentage point higher than the 41% reported for August, indicating that customers’ inventory levels are still considered too low in September."The index remains at a low level indicating that downstream customers continue to operate at a high level of demand that production cannot fully satisfy," says Fiore.

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