ISM Manufacturing Index Contracts for Eleventh Consecutive Month

The Institute for Supply Management (ISM) manufacturing purchasing managers index (PMI) rose to 49.0 in September. The latest figure marks the eleventh consecutive month the index has been in contraction territory after a 29-month period of growth dating back to June 2020. The August reading was above the forecast of 47.7.

Here is an excerpt from the latest report:

Fiore continues, “The U.S. manufacturing sector continued its contraction trend but at a slower rate, recording its best performance since November 2022, when the PMI^® also registered 49 percent. Companies are still managing outputs appropriately as order softness continues, but the month-over-month PMI^® improvement in September is a clear positive. Demand eased marginally, with the (1) New Orders Index contracting, though at a slower rate, (2) New Export Orders Index continuing in contraction territory but with a marginal increase, and (3) Backlog of Orders Index declining. The Customers’ Inventories Index reading indicated improved supply chain efficiency, as output improved and customers’ inventories continued to decline. Output/Consumption (measured by the Production and Employment indexes) was positive, with a combined 5.2-percentage point upward impact on the Manufacturing PMI^® calculation. Panelists’ companies improved production compared to August and continued to manage head counts, primarily through attrition and hiring freezes. Inputs — defined as supplier deliveries, inventories, prices and imports — continued to accommodate future demand growth. The Supplier Deliveries Index indicated faster deliveries for the 12th straight month, at a faster rate compared to August, and the Inventories Index remained in contraction territory, but improved month over month. The Prices Index remained in ‘decreasing’ territory, 4.6 percentage points lower than the August reading, signifying a return to price reductions, but energy costs in August and September could possibly affect future material costs. Manufacturing supplier lead times continue to decrease, but at a slow pace.

Here is the table of PMI components.

Background on ISM Manufacturing Index

The ISM Manufacturing Index is a diffusion index, meaning that a reading above 50 indicates expansion in the sector and a reading below 50 indicates contraction. Therefore, the latest reading of 49.0 indicates we are in contraction territory. What sort of correlation does that have with the months before the start of recessions? Check out the blue dots in the chart below. The 11 recessions during this time frame are indicated along with the index value the month before the recession starts.

The month before a recession, the index has ranged between 42.1 and 66.2 with an average of 49.7, a level we have been below for the past 11 months. The current level of 49.0is below 6 of the 12 recessions shown above.

Here is a closer look at the series beginning at the turn of the century.

This article was originally written by Doug Short. From 2016-2022, it was improved upon and updated by Jill Mislinski. Starting in January 2023, AP Charts pages will be maintained by Jennifer Nash at VettaFi | Advisor Perspectives

ISM Manufacturing Index Contracts for Eleventh Consecutive Month

Background on ISM Manufacturing Index

Sponsored Content

Editorial Calendar

Popular