Behind the Numbers in ISM’s Q3 Report on Business

On October 1, the Institute for Supply Management (ISM) released its latest Report on Business, a monthly publication that examines industry trends and statistics within the manufacturing sector. The composite Purchasing Managers Index (PMI), referenced below, is compiled and used by the ISM to analyze the state of the economy and predict future growth or contraction based on five categories: New Orders, Production, Employment, Supplier Deliveries and Inventories. A PMI over 50 indicates that the manufacturing environment is expanding.

Here is a comparison of PMIs for the first nine months of 2020 and 2019:

Manufacturing proved to be surprisingly resilient during a difficult Q3. Many panelists noted their organizations learned how to maintain output despite working in reconfigured factories. September 2020, in fact, marked four consecutive months of industry growth following the government-imposed shutdowns first endured in April. Overall, panelists were optimistic, offering 2.3 positive comments for every negative remark. Only one of the top six manufacturing industries, Petroleum & Coal Products, did not report expansion.

Demand – which is comprised of New Orders, Customer Inventories and Backlog of Orders – grew. Customer Inventories, (37.9% in September) dropped to its lowest figure since June 2010 when it stood at 38%. Unlike some other categories, lower figures for Customer Inventories are typically indicative of increased demand, especially when coupled with increasing New Orders and Backlog of Orders.

Backlog of Orders itself came in at 55.2% in September, and New Orders reached 60.2%. Four of the six big industry sectors (Fabricated Metal Products, Chemical Products, Food, Beverage & Tobacco Products and Transportation Equipment) experienced increases in those two categories.

Prices came in at 62.8%, with commodities aluminum, copper, lumber and steel products all experiencing price increases. Aluminum prices have, in fact, been on an overall upward trend since April, increasing 20%. The price of lumber increased 61% from January 1 to September 30.

Employment continued to increase in Q3. While unemployment in April reached 14.7%, it later recovered to 8.4% in August. Although still not as low as February, which stood at 3.5%, the numbers do indicate significant improvement, which is seen as both a sign of increased production and a potential increase in consumption.

While this all paints a much improved picture of the industry, there are still challenges. Delays in deliveries have restricted production for some organizations, with supplier deliveries coming in at 59% in September. When this index is greater than 50%, it’s a sign of slower deliveries. Challenges with both labor and transportation continue to be the culprit. A panelist in Food, Beverage & Tobacco Products noted, “All of our factories are still struggling with manning shifts due to positive COVID-19 cases and/or quarantine because employees came in contact with someone who contracted the virus.”

Computer & Electronic Products, which is heavily dependent on imports from China to produce goods, is experiencing delays in receiving components. And there’s still uncertainty around COVID-19. Will there be surges in cases? Will the virus continue to mutate? When will a vaccine be released? With all these questions and more, manufacturing needs to be prepared to pivot to adjust to government regulations and public health concerns.

For further information on the Report on Business, go to

https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/pmi/september/