At a time when economic indicators are mixed, it appears United States manufacturing is heading in the right direction, according to the Institute for Supply Management (ISM).

The nation's manufacturing sector grew for the second straight month in September, according to the latest monthly manufacturing Report On Business, released today. ISM said its index of the factory sector, also known as the purchasing managers' index (PMI), was 52.6 in September, slightly below the 52.9 reported the previous month. The reading in August was the highest since June 2007.

Both August and September indexes were above the 50-point threshold that indicates growth in activity.

"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," Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee, said in the report.

In September, 13 of the 18 manufacturing industries reported growth, including: wood and paper products; apparel; transportation equipment; textile mills; printing; petroleum, coal and chemical products; electrical equipment, appliances and components; fabricated metal products; computers and electronics; and food and beverage products.

"The report on September activity points to a continued increase in manufacturing production that is helped by positive foreign trade dynamics and a slower pace of inventory destocking," according to Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, in an analysis of the ISM report. "A continuation of relatively strong new orders in the report is also very encouraging."

Both new orders and production are growing, albeit at a slower rate when compared to August.

The new orders index, a leading indicator of future activity, moved to 60.8 in September. This followed 64.9 in August and 55.3 in July, and marked the third consecutive month of growth in the index.

The production index registered 55.7 last month after 61.9 in August. This is the fourth straight month of growth in the production index.

The inventories index rose to 42.5 in September from 34.4 in August.

According to Ore, the lower level of orders and production remain consistent with sustained growth going forward.

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

"It appears the fundamentals for continuing recovery are still at work as inventories and sales are gaining balance," Ore added.

The U.S. manufacturing sector has been one area of the economy offering hope that the U.S. is close to a recovery. For a good part of this year, the sector has been seeing steady improvement. According to today's ISM report, the overall economy grew for the fifth consecutive month in September.

"We view the September ISM report as consistent with our outlook for the industrial sector's recovery," Meckstroth said. "Positive momentum has been restored and will become self-reinforcing as new orders cascade through the domestic supply chain. Extremely low factory utilization and high unemployment will, however, depress heavy capital equipment spending for some time to come and put a damper on the pace of the industrial recovery."

See Also

U.S. Manufacturing Finally Turns Around

Optimism Amid Crisis: Industry Pros Weigh In

Manufacturers' Pessimism over Economy Declines

Resources

September 2009 Manufacturing ISM Report On Business
Institute for Supply Management, Oct. 1, 2009

MAPI Analysis on ISM Index: Positive Momentum Restored
by Daniel J. Meckstroth
Manufacturers Alliance/MAPI, Oct. 1, 2009

U.S. ISM Mfg Activity Expands in Sept for 2nd Month
by Deborah Lynn Blumberg
Dow Jones Newswires, Oct. 1, 2009

Manufacturing Barometer Business Outlook Report 2Q 2009
PricewaterhouseCoopers LLP, Aug. 7, 2009

Latest Group Outlook Survey...Indicates Manufacturers Becoming Optimistic about Economy
Prime Advantage, Sept. 2, 2009