Tuesday, October 2, 2012

The Bump In the Latest ISM Report and the Manufacturing Recession

Manufacturing has been hit by the global slowdown.  Over the last few months, the national ISM index has printed below 50, indicating the sector is in a contraction.  However, the latest report showed an expansion:

"The PMI™ registered 51.5 percent, an increase of 1.9 percentage points from August's reading of 49.6 percent, indicating a return to expansion after contracting for three consecutive months. The New Orders Index registered 52.3 percent, an increase of 5.2 percentage points from August, indicating growth in new orders after three consecutive months of contraction. The Production Index registered 49.5 percent, an increase of 2.3 percentage points and indicating contraction in production for the second time since May 2009. The Employment Index increased by 3.1 percentage points, registering 54.7 percent. The Prices Index increased 4 percentage points from its August reading to 58 percent. Comments from the panel reflect a mix of optimism over new orders beginning to pick up, and continued concern over soft global business conditions and an unsettled political environment."

Also of importance is the anecdotal information contained in the report, which I think is added to show what a fairly wide swath of people in various sub-industries are thinking:

    "Appears that our so-called 'slowdown' was a summer thing. September brings with it increasing requirements and business." (Paper Products)
    "Business improved through Q3, but is beginning to show signs of slowing down in Q4; this has been a typical trend over the last few years." (Wood Products)
    "Business has picked up going into the last quarter." (Plastics & Rubber Products)
    "We are sticking to our manufacturing plan, but have slowed production down considerably. Haven't added any new units to the 2012 plan, and still have no forecast for 2013 released." (Computer & Electronic Products)
    "Sales have tanked over the last two months, bringing a very concerned and stressed management team. Not very optimistic for the near-term future." (Apparel, Leather & Allied Products)
    "Uncertainty in the healthcare legislation (reform) continues to be the underlying force keeping our sales revenue below its full potential." (Miscellaneous Manufacturing)
    "Steel and aluminum prices still dropping, and auto production orders are up." (Transportation Equipment)
    "Domestic business is up; international is down." (Electrical Equipment, Appliances & Components)

    "Demand seems to have stabilized from August. New orders are appearing this month without advanced notice from our customers." (Chemical Products)

The sum total that I read in the above data is that things are getting better.  But, don't get carried away with that analysis.  Things are barely better.  We've moved over the expansion line, but not with a big, consistent or strong move higher.  Instead, this is more of a movement withing the margins.  Think of it as statistical noise rather than a game changing economic development.

This data must be viewed in the light of the latest durable goods report, which was not pretty as noted last week by NDD.  About the only good thing to come out of the report was that the drop ex-transports was -1.3%.  Overall, we've got a manufacturing recession on our hands.

UPDATE: I previously had a graph here, but used the wrong graph.  This is what you get when blogging on medication.  Sorry.