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Purchasing Managers Index — Nonmanufacturing

October 4, 2017

The Institute for Supply Management not only publishes an index of manufacturing activity each month, they publish two days later a survey of non-manufacturing firms — which largely consists of services. The business activity index jumped 3.8 points in September to 61.3 after having risen 1.6 points in August.   In September, 15 of 17 service-sector  industries  reported expansion.  Good, solid, broad-based growth at a slightly faster pace than in August — despite the hurricanes.  At its September level the non-manufacturing index equates to GDP growth of 4.2%.

The orders component  surged upwards by 5.9 points in September to 63.0 after having risen 2.0 points in August.  Orders continued to flow in at a healthy pace in August.  Indeed, with the except of a single  month — April of this year — it is the strongest pace of orders since February 2005.

The ISM non-manufacturing index for employment climbed 0.6 point in September to 56.8 after having risen 2.6 points in August.   Jobs growth should continue in upcoming months at about the same pace we  have seen of roughly 180 thousand per month.

Finally,  the price component surged in September by 8.4 points to 66.3 after having risen  2.2 points in August.   That is the fourth consecutive monthly increase.  The price gains in September to a large extent reflect the interruption of the supply chain in that month from the hurricanes.  The September gain should not be viewed as indicative of a substantial price in the trend rate of increase of prices.

Stephen Slifer

NumberNomics

Charleston, SC


Purchasing Manager’s Index

October 2, 2017

The Institute for Supply Management’s index of conditions in the manufacturing sector climbed 2.0 points in September to 60.8 after having risen jumped 2.5 points in August. .  The September level of the index of 60.8 is the highest level for this index in more than thirteen years (May 2004).  Clearly manufacturing activity is recovering.  Some of the strength reflects the impact of Hurricanes Harvey and Irma  as the re-building effort gets underway.  If the PMI for September  is annualized it corresponds to a 5.5% increase in GDP growth.  If one uses the January through September average PMI it would imply a 4.4% increase in GDP growth this year.

It is important to recognize that the overall index is the compilation of a number of different components — production, orders, employment, supplier deliveries, inventories, prices, the backlog of orders, exports, and imports.

The orders component edged jumped 4.3 points in September to 64.6 after edging lower by 0.1 point in August to 60.3 .  The September surge in orders almost certainly reflects the impact of the back-to-back hurricanes as the re-building process gets started.  The February level of 65.1 was the highest level for the orders component in seven years.   The ISM indicates that an orders index above 52.3  is consistent with an increase in the Census Bureau’s series on factory orders.  It is clear that orders have begun to accelerate which will boost factory production in the months ahead.

In addition to orders, the production component increased 1.2 points in September to 62.2  after climbing by 0.4 point in August.  Thus, the pace of production has begun to climb and given the rise in orders it should gather momentum as we move throughout 2017.   A level above 51.4 is consistent with an increase in the Federal Reserve’s industrial production figure.   “Production remains at strong growth levels in most industries, in spite of weather conditions and supplier delivery constraints experienced during the period,” says Timothy Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee:

The employment index gained 0.4 point to 60.3 after having jumped 4.7 points in August.  The September level of 60.3 was the highest level for this index since  June 2011.  The employment index had been right about at the break-even point of 50.0 for almost a year but has now broken out to the upside in the  past seven months. While the economy is currently cranking out about 180 thousand jobs per month, the factory sector thus far has produced few of them.  The jobs are coming from services and construction.  An ISM index above 50.5 is consistent with the Bureau of Labor Statistics data on manufacturing employment.  Hopefully, 2017 will bring with it at least some moderate increases in factory jobs.

The backlog of orders rose 0.5 point in September to 58.0 after having climbed 2.5 points in August.  The backlog had been  fairly steady for a long while, but now orders are rising and the backlog has begun to climb significantly in the past seven months which will encourage still faster production in the months ahead.

The prices paid component surged 9.5 points in September to 71.5 after holding steady at 62.0 in August.  The September level of 71.5 was the highest reading since May 2011.  Prices continue to climb.  All 18 industries reported paying increased prices for raw materials in September.  Clearly, the two hurricanes were a major factor in the price jump.  A price index level above 52.4 is consistent with an increase in the BLS producer prices index for intermediate materials.

We believe that the economy is  expanding at a moderate pace.  We expect GDP growth of 2.3% in 2017 and 2.8% in 2018.  During that period of time the manufacturing sector will once again begin to expand slowly.

Stephen Slifer

NumberNomics

Charleston, SC