ISM manufacturing data posts another strong month in September

September marked the third consecutive month of solid manufacturing activity, according to the most recent edition of the Manufacturing Report on Business from the Institute of Supply Management (ISM).

The PMI, the index used by the ISM to measure manufacturing activity, hit 56.2 in September, which was 0.5 percent of August and now represents the highest level for the index in 2013. And it is above the 12-month average of 52.4 by 3.8 percent and has been over 50 in nine of the last ten months.

The report also noted that economic activity in the manufacturing sector expanded in September for the fourth straight month, with the overall economy growing for the 52nd consecutive month.

New Orders, which are often referred to as the engine that drives manufacturing, slipped 2.7 percent in September to 60.5 and showed growth for the fourth month in a row. Production rose 0.2 percent to 62.6 and showed growth for the fourth straight month, and Employment saw a 2.1 percent hike to 55.4.

“There is a lot to like about this report,” said Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, in an interview. “This marks three months in a row of solid PMI numbers. The average PMI for the entire third quarter is 55.8, which compares to the first half average of 51.5, so it is 4.3 points ahead for the second half relative to the first half.”

New Orders came in above 60 even with its sequential decrease, with two straight months topping 60, which Holcomb said has not happened since early 2011, a span of 2.5 years. And with Production also more than 60, Holcomb said it speaks to how things are clicking in manufacturing, as is the case with Employment’s 55.4 reading at a high level for the year.

With these key metrics showing strength, Holcomb explained that the key metrics of the index are strong and factoring into the 56.2 September PMI.

That was also evident in the ISM members comments section in the report, too. A furniture and related products respondent said that housing continues to improve, resulting in improved industry conditions, and a transportation equipment respondent simply said overall business is picking up.

September Supplier Deliveries inched up 0.3 percent to 52.6, and Inventories rose 2.5 percent to 50. Backlog of Orders moved up 3.0 percent to 49.5.

Holcomb said Supplier Deliveries are essentially sideways, still slowing at a slightly faster rate, which is good because it means suppliers are having a hard time keeping up and it also supports the notion of strong demand. Inventories are ideally below 50 as an overarching strategy for manufacturing, but Holcomb said the current level is manageable, while Backlog of Orders is contracting more slowly and a growth in the backlog would be welcome in order to serve as a buffer, with things heading in that direction.

Things on the Prices side, which moved up 2.5 percent to 56.5, are moderate as it has increased for only two straight months at a fairly low level, he said.

“Looking at the list of commodities up in price, it is kind of a short list with some repeaters,” said Holcomb. “We have featured many steel categories in the past and only have one left, and those are energy-intensive industries. So to the extent that energy goes down, we will see those come off the list and moderate nicely.

Even with this week’s federal government shutdown here, Holcomb said he is optimistic it will not last long adding that not since 1966 has anything like this impacted overall markets and business conditions. Europe is holding steady with a modest increase in its PMI, and China is also in growth territory, and imports and exports have been positively trending over the last eight-to-ten months.

“We just need things to be normal and not have incidents or government shutdowns like this to interrupt our momentum, which after three months we can easily say we have,” Holcomb said.