The Institute of Supply Management (ISM) shows growth in their manufacturing survey in September 2010 – although the rate of growth is approaching no growth. Econintersect’s analysis follows the headline press release which states in part:
“While the headline number shows relative strength this month as the PMI reading of 54.4 percent is still quite positive, the overall picture is less encouraging. The growth of new orders continued to slow, as the index is down significantly from its cyclical high of 65.9 percent (January 2010). Production is currently growing at a faster rate than new orders, but it typically lags and would be expected to weaken further in the fourth quarter. Manufacturing has enjoyed a stronger recovery than other sectors of the economy, but it appears that weaker growth is the expectation for the fourth quarter. Both the Inventories and Backlog of Orders Indexes are sending strong negative signals of weakening performance in the sector.”
PERFORMANCE BY INDUSTRY
Of the 18 manufacturing industries, 13 are reporting growth in September, in the following order: Apparel, Leather & Allied Products; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Primary Metals; Miscellaneous Manufacturing; Transportation Equipment; Computer & Electronic Products; Furniture & Related Products; Plastics & Rubber Products; Chemical Products; Paper Products; Machinery; and Food, Beverage & Tobacco Products. The three industries reporting contraction in September are: Wood Products; Printing & Related Support Activities; and Nonmetallic Mineral Products.
This is one of the better surveys – but it is still a survey which may or may not be confirmed by hard data which will not appear until up to a month later. Overall this survey follows the consensus economic prediction of slower growth. Of special interest to this analyst this month, is the opinion that prices are continuing to increase. The Producer Price Index recently has been flat.
Econintersect watches new orders and backlog. New orders are barely increasing in September. According to the ISM, a New Orders Index above 50.2 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders. According to the ISM:
The seven industries reporting growth in new orders in September — listed in order — are: Furniture & Related Products; Fabricated Metal Products; Primary Metals; Electrical Equipment, Appliances & Components; Paper Products; Transportation Equipment; and Computer & Electronic Products. The seven industries reporting decreases in new orders in September — listed in order — are: Wood Products; Printing & Related Support Activities; Machinery; Chemical Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; and Food, Beverage & Tobacco Products.
Backlog continues to fall. This is indicative of overcapacity. According to the ISM:
The four industries reporting increased order backlogs in September are: Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Furniture & Related Products; and Miscellaneous Manufacturing. The eight industries reporting decreases in order backlogs during September — listed in order — are: Wood Products; Machinery; Computer & Electronic Products; Printing & Related Support Activities; Transportation Equipment; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Chemical Products.