Despite a slight drop from the previous, month, the Purchasing Managers’ Indexes (PMI) in September remained optimistically high and continued growth in US manufacturing is forecasted at least through the end of this year, according to a new report fromthe Institute for Supply Management (ISM).
In September, the PMI fell 2.4% to 56.6, compared to 59 in August. But as long as the PMI is above 50, continued growth is predicted.
The PMI are economic indicators derived from monthly surveys of private sector companies. The two principal producers of PMIs are Markit Group, which conducts PMIs for over 30 countries worldwide, and ISM, which conducts PMIs for the US.
September Caps a Strong Growth Spurt
September’s PMI of 56.6 is 1% above the 12-month average of 55.6. According to the ISM report, the manufacturing sector has been expanding for the past 16 consecutive months, and overall economic growth has been since for the past 64 months.
Although market growth remained stable, September was the first month during 2014 that the PMI did not show month-over-month growth. But that’s nothing to be concerned about, according to Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee.
“The 59.0 in August was an incredible high … so September’s 56.6 is a good number,” Holcomb said. “Based on the strong quarterly PMI averages, there is continuing progression and upward momentum as we approach the fourth quarter.”
The PMI is just one of four key metrics tracked by the ISM. The other were new orders, which decreased 6.7% to during September to 60.0; Production, which rose 0.1% to 64.6; and Employment, which fell 3.5% to 54.6.
Any employment index above 50.6 is consistent with an increase in the Bureau of Labor Statistics manufacturing employment data, according to the ISM report.
Inventory Depletion to Play Central Role
The drop in production reflected the working off of the backlog orders as much as labor and resources were available, Holcomb said. Even with a decline in backlog orders, the production figure was still impressive, he said.
“If production wer to drop into the high 50s, we would be happy with that,” Holcomb said. “But based on the data, a significant drop-off is not likely at this point. Backlog of orders has been up and down over the last few months and is really a resource to maintain level production, which is seeing high numbers.
Prices in September rose 1.5% to 59.5, whereas inventories fell 0.5% to 51.5. Supplier deliveries fell 1.7% to 52.2.
These trends are expected to continue through the end of the year,according to Holcomb.
US Doing Better than Rest of the World
Michael Montgomery, US economist at IHS Global Insight, said the PMI’s US numbers were encouraging, especially when compared to the rest of the world.
“Activity is humming in North America, stalled in Europe and most of Asia, an dreary with minor declines in most of the rest of the world,” Montgomery wrote in a research not to the ISM report. “The US and Canada are a big market for gods, but final demand is not thriving in either, just doing acceptably well. That leaves inventories as the likely stimulus to the spurt and that is not a foundation for permanent strength. It’s just enough punch for a growth spurt.”
While September dragged slightly, Q3 was the strongest quarter of the year for manufacturing, according to the report.