The expectation had been for the Institute for Supply Management (ISM) to report a fourth consecutive month of contracting activity in September. Instead, ISM’s purchasing managers’ index surprised everyone with an increase from 49.6 in August to 51.5 in September. This moved the figure into expansionary territory for the first time since May.
The increase in the September ISM appears to be due to a slight increase in domestic sales. The index for new orders increased from 47.1 to 52.1.
However, even with the increase in domestic sales we saw a decline in September in export sales given the slowing economy in Europe and other parts of the world.
The production measure of the report also reflected continued contraction, albeit with gains which brought its index to near-neutral (from 47.2 to 49.5). As a result, the backlog of orders has slowed its rate of decline. Also of concern is that pricing pressures have begun to accelerate again, consistent with other surveys.
Even with the slight uptick for the ISM Index there remain anxieties for many of the survey respondents For instance, someone in the wood products business worried that fourth quarter sales were slowing down, and an electrical equipment maker fretted about reduced international sales. An apparel manufacturer went so far as to say, “Not very optimistic for the near-term future.”
Overall, today’s ISM numbers were a surprise suggesting a degree of positivity that other data points have not reported, particularly as they related to new sales. If true, it would be welcome news, as it could suggest modest improvements in manufacturing activity in the coming months. Yet, concerns remain, particularly with regard to still-contracting exports and uncertainties – about the upcoming fiscal abyss. These headwinds have the ability to continue to derail economic growth and production moving forward, particularly if they are not addressed before the end of the year.
Chad Moutray is chief economist, National Association of Manufacturers.