The Institute for Supply Management (ISM) manufacturing index rose 2 points to 60.8 in September, the thirteenth consecutive monthly expansion and achieving a cycle high. Market consensus expected a pullback to 58.1.
All components except inventories (-3 points to 52.5) and imports (-0.5 to 54) advanced in the month. The biggest gains were recorded in prices paid (+9.5 to 71.5), supplier deliveries (+7.3 to 64.4), and new orders (+4.3 to 64.6).
Growth in new orders coupled with decline in inventories results in the spread between the two – useful as a leading indicator of activity – rising to 12.1 (+7 points). This suggests that activity could hold or strengthen in coming months.
Seventeen of the eighteen manufacturing industries reported expansion in September, with textile mills, machinery, and nonmetallic mineral products registering the strongest expansions on the month. The furniture and related products industry recorded a contraction in September.
Key Implications
For the second consecutive month, the U.S. manufacturing sector has beaten expectations, bolstered by strength across 9 of 11 categories. The surge in prices is likely a temporary phenomenon, and appears to be largely driven by supply chain disruptions in the aftermath of hurricane Harvey.
Rebuilding from hurricanes is likely to support manufacturing activity in the next few months, suggesting that there may be some inertia in components such as new orders and production before we see the index pull-back to more sustainable levels. Nevertheless, this report sends a strong positive signal that the U.S. manufacturing sector continues to prove resilient, supported by strong foreign demand that is helping to offset domestic concerns about policy uncertainty, dollar movements, or natural disasters.
