Manufacturing Has Strong September

Heath E. Combs, Don Hogsett, October 10, 2005

Tempe, Ariz. — Staging a major rally and rebounding from weakness the month before, the manufacturing sector expanded sharply faster than expected during September, even though higher raw material prices continued to surge, raising fears about margins, profits and inflation going forward, the nation's purchasing managers reported.

In a key economic indicator, the Institute for Supply Management said its September Manufacturing Index raced ahead to its highest level in more than a year, jumping to a reading of 59.4 percent, up from 53.6 percent in August. It was the strongest monthly reading of the manufacturing sector since August 2004, when the index touched 59.6. The September number was sharply ahead of the 54 percent that analysts had been expecting.

A reading above 50 percent points to expansion in the manufacturing sector, while anything beneath indicates a pullback.

The big September surge was driven by strong gains in the indices for new orders and production, both of which climbed more than 7 percent. In more good news, customers' inventories were down 2 percent, suggesting their need to re-order, and order backlogs grew 4.5 percent.

The major blemish in the monthly report was a continued surge in raw material prices. The September Prices Index jumped 15.5 percent to a reading of 78 percent, after rising more then 14 percent in August, potentially putting a squeeze on manufacturer margins and profits going forward.

“While energy prices and the impact from Hurricane Katrina are major concerns, the manufacturing sector has regained significant momentum,” said Norbert Ore of the purchasing managers' trade group.

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

Source: Institute for Supply Management
Purchasing Managers' Index 5.8%
New Orders 7.4
Production 7.2
Employment 0.5
Inventories 3.9
Customers' Inventories -2.0
Cost of Supplies 15.5
Order Backlogs 4.5
Export Orders 3.6
Imports 0.0

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