By Susan A. Baird
PBN Web Editor
TEMPE, Ariz. – The U.S. manufacturing sector shrank sharply in September, registering its steepest one-month decline since the nation’s last recession, the Institute for Supply Management reported today.
The trade group’s PMI (a composite index formerly known as the Purchasing Managers’ Index) fell 6.4 percentage points last month to 43.5 percent, after dipping 0.1 percentage points in August, to a near-neutral 49.9 percent (READ MORE). (A PMI of 50 percent indicates that equal numbers of manufacturers surveyed saw their business advance and decline; higher readings indicate the manufacturing economy is expanding. Over the past 12 months, the index has averaged 49.0 percent.)
The index had been expected to fall to 49.5 percent, based on the median forecast from a Bloomberg News survey of 72 economists. (Their predictions for the September PMI ranged from 48 percent to 51.1 percent.)
“The PMI indicates a significantly faster rate of decline in manufacturing during September, marking a departure from the 2008 trend toward negligible growth or contraction each month,” Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee, said today in the institute’s monthly Manufacturing ISM Report on Business. “This is the lowest level for the PMI since October 2001.”
But the overall economy grew for the 83rd consecutive month, Ore noted, saying: “If the PMI for September is annualized, it corresponds to a 0.8 percent increase in real GDP annually.”
The ISM’s New Orders Index fell 9.5 percentage points to 38.8 percent, after rising in August to 48.3 percent. Among the 15 industries reporting last month, increases in new orders were reported by only four – paper products; petroleum and coal products; miscellaneous manufacturing; and food, beverages and tobacco – while the other industries failed to grow.
Meanwhile, the ISM’s Production Index shrank to 52.1 percent, an 11.3-percentage-point decline from August’s 52.1 percent and well above the 49.9-percent threshold generally associated with an increase in the Federal Reserve Board’s industrial production index. Of 11 industries reporting in August, production increases were reported by five: petroleum and coal products; food, beverages and tobacco; paper products; chemical products; and miscellaneous manufacturing.
The index of manufacturers’ inventories fell to 43.4 percent, or 5.9 percentage points below the previous month’s reading, accelerating from August’s 4.3-percentage-point decline. The ISM’s Customer Inventories Index also fell, dipping 1 percentage point to a September level of 53.5 percent, after rising 7.5 percentage points the month before, but remaining high enough to “respondents believe their customers' inventories are too high at this time,” the ISM said.
The ISM’s Employment Index fell to 41.8 percent last month, a 7.9-percentage-point decline from August’s 49.7 percent, falling below the 49.5-percent level “generally consistent with an increase in the [U.S.] Bureau of Labor Statistics’ data on manufacturing employment,” the trade group said.
“This month’s report is showing prices rising at a much slower rate, as the Prices Index fell to the lowest level in 21 months,” Ore wrote. “Export orders continued to increase, but at a slower rate than in August.”
The Prices Index “registered 53.5 percent in September, compared to 77 percent in August, indicating manufacturers are paying higher prices on average … but that prices are increasing at a much slower rate,” the ISM said. “While 30 percent of respondents reported paying higher prices and 23 percent reported paying lower prices, 47 percent of supply executives reported paying the same prices as the preceding month.”
Meanwhile, export orders grew for the 70th consecutive month, the ISM said. Its export-orders index registered 52 percent, remaining above the neutral value despite a 5-percentage-point decline.
The ISM Backlog of Orders Index fell to 35 percent last month from 43.5 percent in August. Higher backlogs were reported by respondents in three industries – plastics and rubber products; miscellaneous manufacturing; and food, beverage and tobacco products.
“Manufacturing could be on the brink of a collapse,” Lindsey Piegza, a market analyst at FTN Financial in New York, told Bloomberg News today. “There are no orders, no jobs and there is really no incentive for businesses to invest. The credit crisis is compounding the problem.”
The Institute for Supply Management, the publisher of Inside Supply Management magazine, produces monthly Reports on Business for the manufacturing and non-manufacturing sectors. Additional information is available at www.ism.ws.
