New Orders, Production Still Expanding in September

Purchasing Managers Index finds fundamentals for continuing recovery

The monthly Purchasing Managers Index presented by the Institute for Supply Management indicates that the U.S. manufacturing sector remains in a growth mode. Though the September figure declined slightly from the August report, from 52.9% to 52.6%, it was the second consecutive month that the index broke above the 50% level.

According to ISM chairman Norbert J. Ore, "The manufacturing sector grew for the second consecutive month in September. While the rate of growth moderated slightly when compared to August, the recovery broadened as the number of industries reporting growth increased from 11 to 13.

“Both new orders and production are growing,” Ore reported, “but at a slower rate when compared to August. It appears the fundamentals for continuing recovery are still at work as inventories and sales are gaining balance.”

Ore said the September survey included a specific question about the American Recovery and Reinvestment Act, the $787-billion federal stimulus program enacted in February. “Twelve of the 18 manufacturing industries expect to derive some benefit from the program,” he said, “and 12 manufacturing industries responded that they expect their companies to see some benefit."

ISM surveys purchasing managers across multiple economic sectors for its reports. A PMI reading above 50% indicates the sector is expanding; a reading below 50% indicates it is contracting.

In addition, ISM explained that a PMI in excess of 41.2% over a period of time generally indicates an expansion of the overall economy. In that regard, the September PMI indicates a fifth consecutive months of overall economic growth, as well as expansion in the manufacturing sector for the second consecutive month since January 2008.

According to Ore, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through September (43.3%) corresponds to a 0.7% increase in real gross domestic product (GDP). However, if the PMI for September (52.6%) is annualized, it corresponds to a 3.6% increase in real GDP annually."

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