ISM’s Purchasing Managers Index (PMI) at 58.5%

Oct 04, 2004

Supply Executives Say New Orders, Production, Employment Grew in September

ECONOMIC ACTIVITY IN THE MANUFACTURING SECTOR grew in September for the 16th consecutive month, while the overall economy grew for the 35th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business.

The report issued by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee and group director, strategic sourcing and procurement, Georgia-Pacific Corporation. "The manufacturing sector continued to grow during September, but at a slightly slower rate. Both new orders and production remain strong, and employment growth accelerated."

ISM's PMI registered 58.5% in September, a decrease of 0.5 percentage point when compared to 59% in August. ISM's New Orders Index declined 3.1 percentage points from 61.2% in August to 58.1% in September. ISM's Production Index increased 2.1 percentage points from 59.5% in August to 61.6% in September. The ISM Employment Index is at 58.1% for September, an increase of 2.4 percentage points when compared to the 55.7% reported in August.

Comments from respondents this month were typical of a growing manufacturing sector said ISM. Concerns range from problems with product launches to seasonal issues and strikes. Florida's hurricanes caused problems for some businesses while others saw a pickup in demand. The employment picture is improving according to the respondents as they mention both blue-collar and white-collar new hires. The growth in inventories appears to be voluntary as companies build inventories for "stocking of finished goods for resale," for "hedging against price increases," and, as one member responded simply, "more business, more inventory."

The PMI indicates that the manufacturing economy grew in September for the 16th consecutive month. The PMI for September registered 58.5%, a 0.5 percentage point decrease when compared to the August reading of 59%. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

"September was surprisingly strong given the recent slowing of growth in new orders. Production and employment were particularly encouraging as both indexes increased when compared to August. Any concern over inventory growth would seem to be offset by the decline in customer inventories," said Ore.

In September, 15 industries reported growth including Glass, Stone & Aggregate; Rubber & Plastic Products; Industrial & Commercial Equipment & Computers; Tobacco; Apparel; Transportation & Equipment; Chemicals; Food; Wood & Wood Products; Electronic Components & Equipment; Printing & Publishing; Instruments & Photographic Equipment; Paper; and Fabricated Metals.

PMI in excess of 42.8%, over a period of time, generally indicates an expansion of the overall economy. The September PMI indicates that both the overall economy and the manufacturing sector are growing. The past relationship between the PMI and the overall economy indicates that the average PMI for January through September (61.5%t) corresponds to a 6.8 percent increase in real gross domestic product (GDP). In addition, if the PMI for September (58.5%) is annualized, this corresponds to a 5.7% increase in GDP.