Manufacturing Economy “at Soft Point”

By Susan Avery

October 02, 2015 at 1:24 PM

Brad-Holcomb-217x300.jpgAt 50.2%, the PMI is down 0.9 percentage points from August reading and is at the lowest point of the year, but the reading also shows that the manufacturing economy is growing and has been for 33 consecutive months. A PMI over 50% means the manufacturing economy is growing. A reading below 50% means it's contracting. 

“We are definitely at a soft point, but still growing,” said Bradley J. Holcomb, Chair of the ISM Manufacturing Business Survey Committee, on Manufacturing Talk Radio recently. Holcomb appears on the online show hosted by Lew Weiss, President, All Metals & Forge Group, each month to present the latest Manufacturing ISM Report on Business and offer perspective to listeners.  

Manufacturing Talk Radio is broadcast online on Tuesdays at 1 pm to 2 pm Eastern Time. 

“If we look at the five indicators that make up the PMI: new orders, production, employment, supplier deliveries, four are above 50%, Holcomb said. “Raw materials inventories stayed the same as last month, contracting, “but still in a very nice range for managing raw materials inventories.”

Manufacturing Talk Radio Host Weiss asked Holcomb to share some of the comments he receives each month from supply professionals who participate in the survey as additional insight. Holcomb responded that many show “caution and uncertainty,” pointing to concerns particularly about the Federal Reserve and the Chinese economy. To view image on right, click on it to enlarge.

manufacturing at a glance september 2015.jpgThe September, 2015, report shows:

  • The New Orders Index registered 50.1%, a decrease of 1.6 percentage points from the reading of 51.7% in August. New orders are growing for the 34th consecutive month, but at a slower rate. Seven industries are reporting growth in new orders. Nine see a decrease.
  • The Production Index registered 51.8%, 1.8 percentage points lower than the reading in August (53.6%). Still above 50%, production is growing for the 37th consecutive month. Here, nine industries are reporting growth, seven declines. 
  • The Employment Index registered 50.5%, 0.7 percentage points below the August reading of 51.2%, indicating growth in employment for the fifth consecutive month.  
  • Supplier delivery performance to manufacturers was slower in September as the Supplier Deliveries Index registered 50.2%, which is 0.5 percentage points lower than the 50.7% reported in August. This is the second month of slower supplier deliveries after two consecutive months of faster supplier deliveries. 
  • Inventories registered 48.5%, which is the same as the August reading and shows raw materials inventories are contracting in September for the third consecutive month. 

As for prices, the Prices Index registered 38% in September, which is one percentage point lower than in August, indicating a decrease in raw materials prices for the 11th consecutive month.Of the 18 manufacturing industries the Report on Business considers, not one reported paying increased prices for raw materials in September. Holcomb called the decrease “unprecedented and driven by oil.”

Holcomb also explained to Manufacturing Talk Radio listeners why this “slow point” in the economy is not quite as worrisome as it might appear. A PMI of more than 43.1% over time generally indicates an expansion of the overall economy. 

“The past relationship between the PMIand the overall economy indicates that the average PMIfor January through September (52.2%) corresponds to a 2.9% increase in GDP on an annualized basis,” he said. “In addition, if the PMIfor September (50.2%) is annualized, it corresponds to a 2.2% increase in real GDP annually.”

As become a custom when Holcomb appears on the radio show, host Weiss asked for a forecast for the fourth quarter into the first quarter of 2016. While Holcomb expressed optimism for sales of new consumer electronics products coming out in time for the holiday season--consumer electronics makes up more than 15% of manufacturing GDP in the U.S. he said--he declined to provide much of an outlook. “I don’t see why we can’t rebound once again. It’s time to move forward.” 

 

 

 

 



Tags: purchasing Economy Supply chain management Procurement manufacturing sourcing
Category: Blog Post

Susan Avery

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Susan Avery is Editor-in-Chief at My Purchasing Center. She writes articles, blogs and white papers and manages and creates other content for the online procurement and supply management publication. She produces and moderates roundtable discussions, podcasts, webcasts and video interviews. Susan has 30 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com. 


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