ISM report jumps above 50% level for first time since May as new orders expand

By Bob Vavra, Content Manager, Plant Engineering

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For the first time since May, the Institute for Supply Management’s closely-watched PMI Index jumped past the 50 mark in September. That indicates expansion in the manufacturing sector. New orders and employment also were sharply higher for the first time this summer and sparked renewed optimism in manufacturing after a quarter of sluggish activity.

The 51.5 percent level for the PMI was 1.9 percentage points higher than August’s 49.6 figure, the largest single-month percentage point increase in more than a year. The New Orders Index registered 52.3 %, an increase of 5.2 percentage points from August, indicating growth in new orders after three consecutive months of contraction. The Production Index registered 49.5 %, an increase of 2.3 percentage points and indicating contraction in production for the second time since May 2009. The Employment Index increased by 3.1 percentage points, registering 54.7 percent. The Prices Index increased 4 percentage points from its August reading to 58%.

“Comments from the panel reflect a mix of optimism over new orders beginning to pick up, and continued concern over soft global business conditions and an unsettled political environment,” said Bradley J. Holcomb, chair of the Institute for Supply Management Manufacturing Business Survey Committee.”

Among those comments from ISM respondents:

• "Appears that our so-called 'slowdown' was a summer thing. September brings with it increasing requirements and business." (Paper Products)
• "Business improved through Q3, but is beginning to show signs of slowing down in Q4; this has been a typical trend over the last few years." (Wood Products)
• "Business has picked up going into the last quarter." (Plastics & Rubber Products)
• "We are sticking to our manufacturing plan, but have slowed production down considerably. Haven't added any new units to the 2012 plan, and still have no forecast for 2013 released." (Computer & Electronic Products)
• "Sales have tanked over the last two months, bringing a very concerned and stressed management team. Not very optimistic for the near-term future." (Apparel, Leather & Allied Products)
• "Uncertainty in the healthcare legislation (reform) continues to be the underlying force keeping our sales revenue below its full potential." (Miscellaneous Manufacturing) 

According to Holcomb, a PMI above 42.6 %, "Over a period of time, generally indicates an expansion of the overall economy. Therefore, the September PMI indicates growth for the 40th consecutive month in the overall economy, and indicates a return to growth in the manufacturing sector following three consecutive months of slight contraction."

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