ISM and Markit Both Indicate Strong US Manufacturing for September

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Two reports are signaling that the U.S. manufacturing economy looked stronger in September. It is important to keep in mind that September was the month that much of Texas was coming back on line after initial recovery from Hurricane Harvey. It was also the month that Florida took it on the chin from Hurricane Irma.

The Markit PMI Manufacturing Index and the Manufacturing ISM Report on Business were both released on Monday, October 2, 2017. The numbers are strong and pricing looks firm, but there are some mixed comments about these in the reports.

The Markit PMI Manufacturing Index (PMI) rose to 53.1 in September from 52.8 in August. This was more or less in line with the early September flash reading of 53.0. Bloomberg’s consensus estimate was 53.0, and its range of estimates was a tight 52.5 to 53.0.

The Markit report indicated that production rose modestly but new order growth softened, while employment expanded at the quickest rate for nine months. One issue to watch on the inflationary front is that input prices increased at the fastest pace since December 2012. The Markit summary noted:

Optimism remained robust, despite falling to a four-month low. Manufacturers linked positive sentiment to improved market conditions and planned investment.

Markit also addressed the impact of hurricanes:

While the headline PMI remained resiliently elevated in September, despite disruption from hurricanes Harvey and Irma, the details of the survey are more worrying. … Although the hurricanes appear to have made little overall impact on production, supply delays were widely reported and prices for many inputs rose, suggesting some near-term upward pressure on inflation.

Then there is the Institute for Supply Management (ISM) Manufacturing Index. This reading for September was put at a much better than expected 60.8. Bloomberg had the consensus estimate pegged at 58.0, from a range of 57.0 to 59.0. The August reading for ISM was 58.8. The ISM report had beat expectations for four straight months coming into the report.

The New Orders Index rose by 4.3 points to 64.6%, the Production Index rose by 1.2 points to 62.2% and the Employment Index rose by 0.4 points to 60.3%. There was a large gain in the Supplier Deliveries Index, with a 7.3 point gain to 64.4% in September. Meanwhile the Inventories Index fell 3.0 points to 52.5%.

Another issue that stood out in the ISM report was the prices reading. ISM’s Prices Index rose by 9.5 points to 71.5%, and the group noted that this indicated higher raw materials prices for the 19th consecutive month.

Of the 18 manufacturing industries covered by the ISM, 17 reported growth in September. The general commentary from the ISM said of September as a whole:

Comments from the panel reflect expanding business conditions, with new orders, production, employment, order backlogs and export orders all growing in September; as well as, supplier deliveries slowing (improving) and inventories growing at a slower rate during the period. The Customers’ Inventories Index remains at low levels.

ISM published direct comments from its survey members, and there were many quotes that directly pointed to hurricane activity. Those commenting on storms and hurricanes said:

  • “Hurricanes causing supply chain and pricing issues.” (Chemical Products)
  • “Business is strong. However, we are concerned about price increases due to the hurricanes.” (Plastics & Rubber Products)
  • “We are closely watching the Houston events as many of our production chemicals are produced in the Gulf region. Some tightening of supply and/or price increases expected.” (Paper Products)
  • “Hurricanes Harvey and Irma will have significant effects on input costs. Disruption in supply chain. Concerns of transportation.” (Food, Beverage & Tobacco Products)
  • “Hurricane Harvey, and now Irma, have impacted the business (building materials). Increasing sales but also causing significant price increases on input raw materials.” (Nonmetallic Mineral Products)