Manufacturing has thus far been a pretty good leader of the recovery. Unfortunately, the industry might be running out of steam. According to the September 2010 Manufacturing ISM Report On Business, manufacturing is still expanding, but at a decreased rate. The PMI came it at 54.4%, down from last month’s 56.3. This was in line with the Bloomberg consensus range of 53.0 to 55.5.
The always important employment index came in at 56.5, down from the amazing 60.4 recorded last month. From the report (emphasis mine):
ISM’s Employment Index registered 56.5 percent in September, which is 3.9 percentage points lower than the 60.4 percent reported in August. This is the 10th consecutive month of growth in manufacturing employment. An Employment Index above 49.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
Eight of the 18 manufacturing industries reported growth in employment in September in the following order: Petroleum & Coal Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Paper Products; Chemical Products; Machinery; and Transportation Equipment. The three industries reporting a decrease in employment during September are: Wood Products; Plastics & Rubber Products; and Food, Beverage & Tobacco Products.
This is still a strong reading.
The negative parts of the report were made apparent:
The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “While the headline number shows relative strength this month as the PMI reading of 54.4 percent is still quite positive, the overall picture is less encouraging. The growth of new orders continued to slow, as the index is down significantly from its cyclical high of 65.9 percent (January 2010). Production is currently growing at a faster rate than new orders, but it typically lags and would be expected to weaken further in the fourth quarter. Manufacturing has enjoyed a stronger recovery than other sectors of the economy, but it appears that weaker growth is the expectation for the fourth quarter. Both the Inventories and Backlog of Orders Indexes are sending strong negative signals of weakening performance in the sector.”
The production index fell to 56.5 from 59.9. This is still rather strong, but the deceleration in the index is worth noting. Most troubling, however, was the rapid growth in the prices index:
The ISM Prices Index registered 70.5 percent in September, 9 percentage points higher than the 61.5 percent reported in August. This is the 15th consecutive month the Prices Index has registered above 50 percent. While 45 percent of respondents reported paying higher prices and 4 percent reported paying lower prices, 51 percent of supply executives reported paying the same prices as in August. A Prices Index above 49.3 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.
Manufacturers are getting squeezed.
Overall, this was still a bullish report. It isn’t quite as nice as last month’s, nor is it as nice as the January 2010 period of greatest acceleration. But any expansion is welcome. I am not as bullish on future months. A PMI less than 50 would not be a surprise in the next three months.
