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ISM Manufacturing Index Remains Below Neutral in September – Robert Hughes (10/02/2019)

The Institute for Supply Management’s manufacturing PMI composite index fell to a reading of 47.8 from 49.1 in August (see top chart). For this index, 50 is neutral, with readings above 50 suggesting expansion and readings below 50 suggesting contraction in manufacturing. Historically, readings above 42.9 have suggested expansion of the overall economy. The September result is the 125th consecutive month above 42.9 but the second month below 50.

Among the key components of the manufacturing index, the production index was 47.3 in September, down from 49.5 in August, suggesting manufacturing output slowed for a second month and the pace of decline accelerated (see bottom chart). For September, just three industries in the manufacturing survey reported growth while 11 reported contraction.

The manufacturing new-orders index came in at 47.3, up slightly from 47.2 in August (see top chart). These were the weakest back-to-back readings since the last recession. Three industries reported growth in new orders in September versus 11 industries with declining new orders.

The new-export-orders index, a separate index that measures only orders for export, was 41.0 in September and has been below 50 for 3 consecutive months. The weak result is the lowest since 2009 during the Great Recession and is consistent with slowing global economic activity and deteriorating trade relations.

The manufacturing employment index decreased to 46.3 in September from 47.4 in August. The reading suggests manufacturing employment likely decreased in September. Payroll processor ADP releases its estimate of private nonfarm payrolls for September on Wednesday October 2 while the Bureau of Labor Statistics will be releasing its own employment report for September on Friday, October 4.  Consensus estimates are for a 4,000 increase in manufacturing jobs for the month.

Supplier deliveries, a measure of delivery times for suppliers to manufacturers, came in at 51.1, down from 51.4 in August. It suggests suppliers are falling further behind in delivering supplies to manufacturers though the slippage has decelerated a bit from the prior month.

Backlogs of orders, prices and imports all showed readings below the neutral 50 level in September, with backlogs at 45.1, prices at 49.7, and imports at 48.1.

Today’s report from the Institute of Supply Management suggests that weakness in the manufacturing sector continued in September. Comments from the survey participants suggest business confidence is declining. Furthermore, global trade remains a significant issue for many manufacturers and sentiment overall remains cautious regarding growth prospects in the short term.

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