The Institute of Supply Management’s Index moved down 1.3 points on month, (m/m) to 47.8 for September 2019. This value is an encouraging sign for the manufacturing sector.  The index has been greater than 50, (>50 = expansion) for thirty-five consecutive months. The new orders sub-index scored a 50.8.  Overall, the ISM manufacturing index is strong and fundamentals remain favorable as the global economy strengthens and the U.S. dollar depreciates.

The ISM manufacturing index is based on surveys of 400 purchasing managers in 20 industries. The survey is a diffusion index calculated as a percent of responses. A value of 50 is neutral, while less than 50 is contracting and greater than 50 is expansionary.

Figure 1 breaks down the detail of the composite index and sub-indexes. The composite index score for September was 47.8. One year ago, the composite index was a strong at 59.8.

Figure 2 shows the history of the ISM manufacturing index from 2003 to present.  On a 3 month moving average, (3MMA) basis, the index posted a value 49.37, down 17.4% 3 months year on year (y/y).  When examined on a 12MMA y/y comparison, the index decreased by 9.7% y/y.

Breaking down the sub-indexes for the monthly numbers: Inventory, (not seasonally adjusted) sub-index moved-down 3.0 points m/m to 46.9 in September. The production sub-index decreased by 3.3 points to 50.8. The employment index moved up down by 2.2 points to 47.3. The order backlogs which also decreased by 1.2 points to 45.1.

Of the 18 manufacturing industries, three reported growth in September: Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Chemical Products. The 15 industries reporting contraction in September — in the following order — are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Wood Products; Electrical Equipment, Appliances & Components; Textile Mills; Paper Products; Fabricated Metal Products; Plastics & Rubber Products; Petroleum & Coal Products; Primary Metals; Transportation Equipment; Nonmetallic Mineral Products; Machinery; Furniture & Related Products; and Computer & Electronic Products.

An Institute for Supply Management respondent stated, “General market is slowing even more than a normal fourth-quarter slowdown.” (Fabricated Metal Products)

At Gerdau we closely monitor the ISM manufacturing index since it is an excellent barometer of the present strength as well as a window on the likely short-run future of US manufacturing.