On October 1, the Manufacturing Institute for Supply Management (ISM) released its latest Report on Business, a monthly publication that provides industry trends and statistics for the manufacturing sector. The referenced Purchasing Managers Index (PMI) below is a composite index for the manufacturing industry compiled by the ISM, and is based on five subcategories: new orders, production, employment, supplier deliveries and inventories. A PMI index over 50% indicates that the manufacturing environment is expanding, and the ISM uses this information to analyze the state of the economy and predict future growth or contraction. Here’s the PMI of the first nine months of 2018 and 2019:
Despite the country’s overall economy continuing to grow for the 125th consecutive month through September 2019, the U.S. manufacturing industry’s 35th consecutive month run of expansion came to an end in August 2019. This falls in line with the decrease in business confidence expressed by survey respondents in the most recent ISM reports, citing global trade as the most significant issue. To put this recent activity into perspective, September’s PMI of 47.8% is the lowest PMI since the last month of the Great Recession (June 2009), at which point the index registered at 46.3%.
Fifteen of the 18 tracked manufacturing industries reported contraction in September 2019, with only Miscellaneous Manufacturing, Food, Beverage & Tobacco Products and Chemical Products reporting growth. Contraction of the manufacturing industry is supported by nearly all measures tracked by the ISM. Specifically, the new orders index registered 47.3%, well below the 52.5% measure, which indicates an increase in orders over time. Additionally, ISM’s production index for the month of September registered at 47.3%, indicating the second consecutive month of contraction and the lowest point since April 2009.
The employment index decreased from 54.5% in June 2019 to 46.3% in September 2019, the lowest reading since January 2016. Of the 18 ISM tracked manufacturing industries, only four reported employment growth in September: Miscellaneous Manufacturing, Food, Beverage & Tobacco Products, Textile Mills and Chemical Products.
September 2019 also marked the 43rd straight month of slowing deliveries from suppliers. Respondents noted that they continued to face challenges with the timing of road freight transport and with transporting goods from China. To help combat these difficulties, manufacturers continue to closely manage inventory levels. ISM’s inventories index decreased 3% from August 2019, clocking in at only 46.9% in September 2019, which is the lowest reading since December 2016, when the index was measured at 46%.
Many of these results point to the beginnings of industry contraction. Given the challenges outlined above, along with the increasing costs to retain employees, respondents to surveys expressed a lack of confidence in the continued growth of the industry, so these results are not outside of expectations.
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