Logistics and manufacturing: ISM report shows growth in manufacturing sector
Despite uptick, index is down from August
Sean A. Murphy, Associate Editor -- Logistics Management, 10/2/2009
TEMPE, Ariz.—While showing growth for the second straight month, the September manufacturing report from the Institute for Supply Management (ISM) suggests it may be a while before the economy fully recovers.
ISM’s main figure for measuring the sector’s progress, the PMI, dropped in September from 52.9 to 52.6 percent. Any reading greater than 50 percent indicates growth. Despite inching down, Norbert Ore, chair of ISM’s manufacturing business survey committee said the slip is too small to be a concern.
“I [still] think we’re on a road to recovery,” he said, ““I don’t see it as a significant dip by any means.”
New Orders, which is another index ISM watches in its assessment of the manufacturing sector, dropped from 65 to 60 percent in September. Still well above 50 percent, and Ore said he wasn’t surprised to see the drop, since long-term positive results depend on the new orders index hovering around 60 percent, which he suspects it will.
“65 was not sustainable, but 60 is,” he said.
Inventories went up, from 34.4 to 42.5 percent, but Ore said the gap between new orders and inventories hasn’t been this high since 1975. Ore called that “a real positive,” which indicates that demand for manufactured goods will surely go up from here, as companies work to replenish stocks.
Ore also noted September’s pricing index, which went up from 63.5 to 65 percent. While this might spark inflation fears in some, Ore cautioned these latest results are not the beginning of a big leap upward.
“It tells me that pricing is starting to firm up a bit,” he said. “There’s not enough demand to drive prices to lofty levels.”
Ore also acknowledged that good news in the manufacturing sector will take time to translate into good news for everyone else. Typically, while GDP trends tend to follow ISM’s PMI, it can take a while.
Right now, the current PMI trend shows a growth rate of 2.7 percent, Ore said, which is not enough to spur employers to begin hiring again, which means employment figures will remain low, but in the long run, the trend does appear to be headed upward. ISM has predicted steady growth leading the country out of recession, and so far, Ore said, the predictions have been accurate.
“I think we’re right on track with where we should be,” he said.
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