Manufacturing sector counters recent bad news

ISM numbers surprice

In an unexpected bit of good news for the economy, the U.S. manufacturing sector expanded in September after three months of contraction, according to the latest Institute of Supply Management (ISM) Manufacturing index.

The ISM’s September index reported a reading of 51.5, up from 49.6 in August, and better than the 49.7 reading that some economists had predicted (see table below). In an analysis of the numbers, Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. says that the some important takeaways from the index include “a decent gain for the employment gauge and a reversal of the weakening trend in the so-called recession indicator,” a number made up of the net reading of new orders less the index of inventories, which rose from -5.9 to 1.8.

 

 

9/30/2012

8/31/2012

Change

ISM PMI

51.5

49.6

1.9

Production

49.5

47.2

2.3

New orders

52.3

47.1

5.2

Backlog orders

44

42.5

1.5

Supplier

50.3

49.3

1

Inventories

50.5

53

-2.5

Employment

54.7

51.6

3.1

Prices paid

58

54

4

Export orders

48.5

47

1.5

Imports

49.5

49

0.5

Almost every indicator was up from last month, including production, which rose from 47.2 to 49.5 and new orders, which saw an increase of 5.2. Notably, the employment gauge rose 3.1 to 54.7, extending a nearly three-year stretch in which manufacturers have not reported contracting employment conditions, according to Wilkinson.

Although import and export orders both remained contractionary, it was at a lesser rate. The same was true for the production gauge, which Wilkinson notes “is only 50 baps points away from a return to expansion.” The markets rose Monday on the release of the data.

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