ISM Manufacturing, Construction Spending

Another Solid Manufacturing Report, With Some Warning Signs

  • The September ISM Manufacturing Index increased to 51.6 percent as production ramped up.
  • Construction Spending for August increased by 1.4 percent on stronger public sector activity.

U.S. manufacturing remains a bright spot in an increasingly gloomy global economy. The Institute for Supply Management’s September Manufacturing Report shows an increase in the Purchasing Managers Index to 51.6 from the August reading of 50.6. An index level above 50 represents an expanding manufacturing sector. The production sub-index increased from 48.6 in August to 51.2 for September, showing increasing factory output for the month. The employment sub-index increased to 53.8, underscoring the strength we have seen in manufacturing employment over the past year. Despite the overall positive tone of the report, there are some warning lights blinking. The new orders sub-index remains below 50 at 49.6, indicating a softening of new orders. Also, the backlog of orders sub-index is now down to 41.5 showing that the order book is indeed thinning for many manufacturers. Of the 18 reporting industries, 12 reported growth in September, including wood products, petroleum, food, and apparel industries. Six industries reported contraction in September. They are: primary metals, textiles, furniture, fabricated metals, paper and electrical equipment. Anecdotal comments confirm that Japan supply chain issues are over, auto production is a driving force but weaker global macroeconomic conditions are a concern.

Construction spending was stronger in August according to the Census Bureau. The value of construction put in place increased by 1.4 percent for the month, pushed by gains in public projects. Total public construction increased by 3.1 percent in August despite the wind-down of fiscal stimulus spending. A strong push came from education related projects, up 4.3 percent for the month. Private residential construction spending increased by 0.7 percent in August, out of synch with the previously reported 5.0 percent decline in August housing starts. Private nonresidential construction was flatter, gaining 0.2 percent for the month.

Market Reaction: U.S. equities markets opened with losses. Treasury yields are down. Oil is down to $78.46/barrel. The dollar is down against the yen and up versus the euro.

ISM Index

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