PMI posts a sharp decline in September

The Institute for Supply Management released their monthly Manufacturing ISM Report on Business today. The Purchasing Manager's Index (PMI) came in at 43.5% for September, a dramatic drop from August 2008 which was 49.9%.  A PMI reading of 49.9% suggests that the manufacturing economy is contracting. Per ISM:

"A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting...If the PMI for September (43.5 percent) is annualized, it corresponds to a 0.8 percent increase in real GDP annually...A PMI in excess of 41.1 percent, over a period of time, generally indicates an expansion of the overall economy."

This was the biggest monthly drop since 1984 when PMI dropped from 69.9, which was at that time an 11 year high, to 60.5.  The big drop in September comes as a big surprise.  Economists had expected PMI to come in at 49.6%.

Here is what some of the respondents to the ISM survey are saying:

• "We have experienced a larger-than-expected slowdown in orders during the last month." (Electrical Equipment, Appliances & Components)
• "Steel, a main raw good for our business, has finally started showing some signs of softening a bit." (Machinery)
• "Business continues to slow down. Fourth quarter 2008 is going to be down 15 percent from third quarter." (Fabricated Metal Products)
• "Customers waiting for material price reductions in the face of falling oil prices." (Plastics & Rubber Products)
• "Continued strong export demand across several product lines." (Chemical Products)

PMI was one of the last bastions holding up against the housing and credit crisis.  It now looks like the contagion is spreading quickly to all parts of the economy.

Sphere: Related Content