ISM: U.S. Manufacturing (PMI) Drops More Than Expected In September

by Ike Obudulu Posted on October 1st, 2018

The Institute for Supply Management released a report on Monday showing a slightly bigger than expected slowdown in the pace of growth in the U.S. manufacturing sector in the month of September, partly reflecting supply chain issues.

The ISM said its purchasing managers index fell to 59.8 in September from 61.3 in August, although a reading above 50 still indicates growth in the manufacturing sector. Economists had expected the index to edge down to 60.3.

The slightly bigger than expected decrease by the index came after it reached its highest level in over fourteen years in the previous month.

A slowdown in the pace of new orders growth contributed to the pullback by the headline index, with the new orders index sliding to 61.8 in September from 65.1 in August.

“Customer demand expansion softened slightly this month but continued to expand at high levels,” said Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee.

While the report also said the supplier deliveries index dropped to 61.1 in September from 64.5 in August, a reading above 50 still indicates slower deliveries.

“This is the 24th straight month of slowing supplier deliveries and indicates the supply chain’s difficulty in keeping up with new order and production demand,” Fiore said.

He added, “Lead times continue to extend, supply chain labor issues continue to restrict performance, and transportation issues are limiting supplier execution.”

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Meanwhile, the ISM said the production index inched up to 63.9 in September in from 63.3 in August, reaching its highest level since January.

The employment index also crept up to 58.8 in September from 58.5 in the previous month, indicating a slight acceleration in the pace of job growth in the manufacturing sector.

On the inflation front, the report said the prices index tumbled to 66.9 in September from 72.1 in August, pointing the slowest pace of price growth since last November.

“Demand remains robust, but employment resources and supply chains continue to struggle, but to a lesser degree,” said Fiore.

He added, “Respondents are again overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations.”

The ISM is scheduled to release a separate report on activity in the service sector in the month of September on Wednesday. The non-manufacturing index is expected to edge down to 58.3 in September from 58.5 in August.

Why Markets Care About ISM Manufacturing PMI

ISM Manufacturing PMI (also called Manufacturing ISM Report On Business) measures the level of a diffusion index based on surveyed purchasing managers in the manufacturing industry

It is derived from a survey of about 400 purchasing managers which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories;

It is released monthly, on the first business day after the month ends by the Institute for Supply Management (ISM) – before most of the official data on industrial output, manufacturing and Gross Domestic Product (GDP) become available.

The PMI covers five major survey sectors/areas: new orders, inventory deals, supplier deliveries & employment, and production. In doing so, it asks the respondents about changes in their discernment of key business variables from the month before. After getting the data, a composite index is constructed.

So, basically, it is a survey-based measure that asks questions about any change in business conditions, whether it is improving or not.

The Purchasing Managers’ Index (PMI) is a number from 0 to 100. Above 50 indicates expansion, below 50 indicates contraction, and at 50 indicates no change.

PMI = (Pi * 1) + (Pn * 0.5) + (Pd * 0)

Pi = percent of answers reporting an improvement
Pn = percent of answers reporting no change
Pd = percent of answers reporting a deterioration

The usual effect s that ‘Actual’ greater than ‘Forecast’ is good for the dollar and vice versa.

ISM Manufacturing PMI is a leading indicator of economic health – businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company’s view of the economy. PMI is both survey-based and an investor sentiment measure of the economy’s manufacturing sector. Digital participants and investors who invested in some manufacturer company must keep up with the market trends by following purchasing managers’ index (PMI).

Other Economy News : U.S. Construction Spending Shows Uptick In August

With a jump in spending on public construction largely offset by a drop in spending on private construction, the Commerce Department released a report on Monday showing construction spending in the U.S. ticked up by much less than expected in the month of August.

The Commerce Department said construction spending inched up by 0.1 percent to an annual rate of $1.319 trillion in August after rising by 0.2 percent to an upwardly revised $1.317 trillion in July.

Economists had expected construction spending to climb by 0.5 percent compared to the 0.1 percent uptick originally reported for the previous month.

The modest increase in construction spending came as spending on public construction surged up by 2.0 percent to a rate of $316.7 billion in August from $310.5 billion in July.

Spending on educational construction jumped by 1.0 percent to a rate of $72.3 billion, while spending on highway construction spiked by 1.7 percent to a rate of $99.0 billion.

On the other hand, the report said spending on private construction fell by 0.5 percent to a rate of $1.002 trillion in August from $1.007 trillion in July.

While spending on residential construction slid by 0.7 percent to a rate of $548.9 billion, spending on non-residential construction edged down by 0.2 percent to a rate of $452.9 billion.

Meanwhile, the Commerce Department said total construction spending in August was up by 6.5 percent compared to the same month a year ago.

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