The Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) continues to reflect a strong expansion, but activity eased slightly overall in September. The headline figure dropped from 59.0 in August to 56.6 in September, which was weaker than anticipated. August’s reading had been the highest level since March 2011, and the pullback in September stemmed from slower paces of growth for new orders (down from 66.7 to 60.0), employment (down from 58.1 to 54.6) and exports (down from 55.0 to 53.5). It is likely that softer growth abroad and geopolitical events have dampened some enthusiasm, particularly on the international sales figures.
Despite some reduced data points for the month, manufacturers remain mostly positive. For instance, the pace of production (up from 64.5 to 64.6) was marginally higher in September, with the index exceeding 60 – indicating strong growth – for four consecutive months. Likewise, the new orders index has measured 60 or higher for three straight months. As such, it suggests that manufacturing leaders continue to see strengths, albeit with less optimism that the month before. The sample comments tend to support this interpretation, with several of them noting increased demand, sales and shipments.
While it is disappointing that the employment index declined somewhat in September, the longer term trend line reflects improvements from earlier in the year. For instance, the hiring measures averaged 57.0 in the third quarter, a nice step up from the 51.9 and 53.4 averages in the first and second quarters, respectively.
Overall, manufacturing sentiment was a bit softer than expected in September, but the underlying data show strong expansions in both demand and output. Manufacturing leaders are mostly positive about the coming months. This is largely consistent with the findings of our most recent NAM/IndustryWeek Survey of Manufacturers, which observed two year highs in respondents’ outlook. Yet, business leaders are also keenly aware of possible risks on the horizon. This includes geopolitical events, slowing economic growth in key export markets, a still-cautious consumer, workforce challenges, and other possible downside risks.
Chad Moutray is the chief economist, National Association of Manufacturers.