“Business is Booming”
U.S. manufacturing activity posted a fifth straight month of expansion in September, though activity slowed slightly over last month, according to the Institute for Supply Management’s monthly Report on Business.
According to the ISM, U.S. manufacturing activity edged down 0.6% in September, and now stands at 55.4%.
Although activity took a step back, the index is still well within expansion territory, suggesting a recovery in the sector is securely underway.
The breakdown of growth was similar to August’s report, with increase in activity led by new orders and production. Employment is still contracting, while exports and imports both reported expansion.
Optimism among executives hit a level not seen since the onset of the pandemic, with 2.3 positive comments for every negative comment.
Said Timothy Fiore, Chairman of the ISM: “After the coronavirus (COVID-19) pandemic brought manufacturing activity to historic lows, the sector continued its recovery in September. Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories and are becoming more proficient at maintaining output.”
Fiore went on to say that key indicators such as demand, consumption and inputs registered levels that are indicative of a normal expansion cycle and that many industrial businesses have learned to adapt and deal with the variables brought on by the pandemic.
One executive in the transportation equipment industry said, “Business is booming, and the supply chain has been caught off guard. We are working closely with our suppliers to ensure supply and try to control costs. The resin industry, along with plastics, is driving cost increases and scarce availability.”
Of eighteen industries, fourteen reported growth in September (compared to fifteen in July). Growth was led by paper products; wood products; food, beverage & tobacco products; and furniture/related products.
The four industries posting declines included apparel, leather & allied products; printing/related support activities and primary metals.
New Orders Ease Back Following Record Highs
The New Orders Index, which has been surging the past several month, took a step back, falling 7.4%. This is after hitting a 16-year high last month of 67.6%. The New Orders index remains well in expansion territory, registering 60.2%.
One respondent on the electrical equipment sector reports “Demand remains high, strong finish to 2020 projected, with an even stronger 2021 fiscal year. Prices have increased in certain categories, but no major price increases of our own have been implemented yet. We are seeing an uptick in reshoring opportunities in the third quarter across various industries and products.”
Related: COVID-19’s Impact on the Reshoring Movement
Another in the paper products industry reported, “We are seeing a marked increase in international demand in Q4 compared to Q2 and Q3. Still not at historical levels; however, a positive outlook.”
Twelve of eighteen industries reported an uptick in new orders for September, compared to fifteen in August. New orders were led by wood products; electrical equipment, appliances and components; and plastics & rubber products.
Manufacturing Production Edges Down
The ISM’s Production Index edged back 2.3% in September to a still-expansionary reading of 61%.
Fourteen of eighteen industries reported growth in output, led by wood products; electrical appliances & components; and furniture/related products.
The COVID-19 pandemic, however has created a new set of challenges for the assembly line. Said one executive in the food products industry: “…All of our factories are still struggling with manning shifts due to positive COVID-19 cases and/or quarantine because employees came in contact with someone who contracted the virus.”
Employment Bumps Up, Skirting Expansion
The employment has been one of the sore spots in the otherwise stellar ISM reports over the past several months. While key metrics such as new orders and output have skyrocketed in recent reports, employment has lagged, remaining in contraction territory.
September’s report, however, shows the employment reading edging up 3.2% to 49.6%, skirting expansion. So although employment is still in contraction, the metric is not slowing nearly as much as in previous months.
Similar to August’s report, eight of eighteen industries reported an increase in hiring for the month of September, led by textile mills; furniture & related products; miscellaneous manufacturing; and computer & electronic products.
Looking for more economic news? Read our post The Big Picture Report on U.S. Manufacturing Business Conditions
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