September 2014 ISM Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that expansion of economic activity in the U.S. manufacturing sector stumbled in September. The PMI fell back to 56.6 percent, a decrease of 2.4 percentage points from August’s 59.0 percent (50 percent is the breakpoint between contraction and expansion). ISM’s manufacturing survey represents under 10 percent of U.S. employment and about 20 percent of the overall economy. All of the sub-indices weakened except for Production and Input Prices.

Nonetheless, Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee said that “comments from the panel reflect a generally positive business outlook, while noting some labor shortages and continuing concern over geopolitical unrest.”

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There was fairly wide-spread support among the sub-indices for the expansion in both Wood and Paper Products during September. Although one Paper Products respondent observed, “Outlook is very good; demand seems to be growing,” declining employment and new export orders present some potential future downside risks.

The pace of growth in the non-manufacturing sector -- which accounts for 80 percent of the economy and 90 percent of employment -- also retreated in September. The NMI registered 58.6 percent, 1.0 percentage point lower than August’s 59.6 percent; the drop appears to have been primarily concentrated in the New Orders and Orders Backlog sub-indices. “Respondents’ comments indicate that business seems to be leveling off and there is a slight slowing in the momentum of the past few months of strong growth,” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. Even so, “they continue to remain optimistic about business conditions and the overall direction of the economy.”

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Two of the three service industries we track reported expansion in September, although only Construction had meaningful support among the sub-indices. “In the building industry there continues to be a lot of remodeling and smaller additions with replacement facilities and new buildings lagging,” wrote one Construction respondent. “Many companies would like to build new, but are still concerned about making the large investment at this time.”

Commodities up in price included lumber and paper products. Some respondents indicated paying more for fuel, others less. No relevant commodities were in short supply.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.