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ISM Manufacturing: Strong Rebound, Back Over 50 on New Order Growth

October 3, 2016

Bottom Line: Manufacturing activity rebounded sharply in September, moving back over the 50 break-even level. The differential between new orders and inventory levels grew, suggesting manufacturing activity levels will continue to stay in expansionary territory (above 50 on headline ISM) over the coming months. Employment in the manufacturing sector fell, but was still slightly above the average survey level for the last twelve months. Overall the report suggests modest manufacturing activity. Despite the better headline and aggregate new orders, only half of the 18 industries reported a increase in new orders and 10 of 18 reported growth in production. A respondent in the electronics industry reported "negotiating prices down on all metals" as the price index was unchanged in September. And one in the transportation equipment sector reported uncertainty due to the Hanjin Shipping bankruptcy. On the plus side, purchasing managers in the furniture sector and fabricated metal products sectors reported solid gain and positive outlooks.

The ISM Manufacturing Index ROSE by 2.1 points in September to 51.5%, compared with market expectations for a smaller increase to a 50.4%. This indicates that manufacturing activity expanded modestly during the month.

New Orders grew sharply from 49.1% to 55.1%. Meanwhile, Export Orders declined slightly. Production grew moderately from 49.6% to 52.8%. Consequently, Order Backlogs declined slightly.

Inventories grew slightly from 49.0% to 49.5%. They are modestly above the average survey level for the last twelve months.

Employment grew modestly from 48.3% to 49.7%, suggesting there will be modest factory job creation in the upcoming payroll employment report.

Prices were unchanged.

Article by Contingent Macro Advisors