U.S. Manufacturers Feel Contraction

Don Hogsett, October 16, 2006

U.S. manufacturing activity barely grew in September, purchasing managers reported in their monthly canvass of smokestack America.

The widely watched Institute for Supply Management (ISM) monthly gauge of manufacturing activity fell by 1.6 percentage points to a reading of 52.9, pressed by slowdowns in production, employment, supplier deliveries, inventories, exports, and order backlogs. A reading higher than 50 indicates growth in the sector, and anything beneath points to a contraction.

The index measuring customers' inventories rose by 3.0%. This suggests a future slowdown in manufacturing to match slowed demand.

The one bright spot was the price manufacturers pay for supplies and raw materials, where the index fell by 12.0%, to a reading to 61.0, indicating prices are rising less rapidly.

In a deep decline, the order backlogs index fell to 46.5, down from 51.5 in August. Employment fell 49.4 from 54.0 the preceding month. Production slowed by half a percentage point, to a reading of 56.1.

Imports rose by 2.0 percentage points to 56.0 in September, as exports cooled by 0.4 percentage points to a reading of 55.3.

Asked for views, a chemical products supplier said, “Lower energy prices should have a beneficial effect, but none has been seen so far.” An electronics producer said, “Business remains sluggish — new order rate and size of orders is low.” A wood products supplier said, “Within the past two weeks, seeing serious downturn in customer orders related to the housing market downturn.”

“Manufacturing is losing momentum and feeling the effects of higher interest rates and a weaker housing market,” said Norbert Ore, chairman of the ISM Manufacturing Business Survey Committee.

September snapshot
Manufacturing benchmarks
Month-over-month percentage point change

Source: Institute for Supply Management
Purchasing Managers' Index -1.6%
New Orders 0.0
Production -0.5
Employment -4.6
Inventories -3.8
Customers' Inventories 3.0
Prices Manufacturers Pay -12.0
Order Backlogs -5.0
Export Orders -0.4
Imports 2.0

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