PMI posts small gain; indicator shows manufacturing and economy still contracting

The Institute for Supply Management released their monthly Manufacturing ISM Report on Business today. The Purchasing Manager's Index (PMI) came in at 35.6% for January which is up from 32.9% for December which was the lowest PMI had reached since May 1980.  Economist's had expected PMI to drop to 32.5%. A PMI reading of 35.6% suggests that the manufacturing economy and the overall economy are both 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 November (36.2 percent) is annualized, it corresponds to a 1.5 percent decrease 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."

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

• "The only positive thing of late is that the U.S. dollar has strengthened significantly against other currencies. We import the majority of our materials so this will have the effect of lowering our COGS." (Transportation Equipment)
• "Steel industry is our main customer, and they have had a real slowdown." (Computer & Electronic Products)
• "Criteria for projects is significantly higher with very short ROI periods." (Food, Beverage & Tobacco Products)
• "We have revised downward our top-line sales estimates for CY2009 by 8 percent due to the continued softness we see in the housing sector." (Machinery)
• "Suppliers are trying to hold onto pricing, but petrochemical and commodity prices are dropping like a rock." (Plastics & Rubber Products)

In the past, when PMI has dropped below 40, the recovery is swift, averaging a 14.7% point rise in three months.  The current 2.7% point rise is minor in comparison. 

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Manufacturing continues to slow

The Institute for Supply Management released their monthly Manufacturing ISM Report on Business today. The Purchasing Manager's Index (PMI) came in at 36.2% for November which is down from 38.9% for October. This is a dramatic drop from a few months ago where PMI for August 2008 was at 49.9%. Economist's had expected PMI to drop to 37%. PMI is now at the lowest level since May 1982. A PMI reading of 36.2% suggests that the manufacturing economy and the overall economy are both 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 November (36.2 percent) is annualized, it corresponds to a 1.5 percent decrease 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."

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

"The only positive thing of late is that the U.S. dollar has strengthened significantly against other currencies. We import the majority of our materials so this will have the effect of lowering our COGS." (Transportation Equipment)

"Steel industry is our main customer, and they have had a real slowdown." (Computer & Electronic Products)

"Criteria for projects is significantly higher with very short ROI periods." (Food, Beverage & Tobacco Products)

"We have revised downward our top-line sales estimates for CY2009 by 8 percent due to the continued softness we see in the housing sector." (Machinery)

"Suppliers are trying to hold onto pricing, but petrochemical and commodity prices are dropping like a rock." (Plastics & Rubber Products)

 

Manufacturing has fallen off a cliff after holding up well in this financial downturn. Just today, the NBER declared that we are in a recession that began in December 2007.  This recession is already lasting longer than the average recession.  It has turned nasty in the last few months and looks like it has a ways to go.  In the previous recessions, PMI has rebounded quickly right after the recession has ended.

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Manufacturing drops dramatically as the economy contracts

The Institute for Supply Management released their monthly Manufacturing ISM Report on Business today. The Purchasing Manager's Index (PMI) came in at 38.9% for October which is down from 43.5% in September.  This is a dramatic drop from August 2008 which was 49.9%. Economist's had expected PMI to drop to 41%.  PMI is now at the lowest level since September 1982.  A PMI reading of 38.9% suggests that the manufacturing economy and the overall economy are both 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."

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

• "Credit market causing suppliers to run closer on terms." (Food, Beverage & Tobacco Products)
• "Appear to be bouncing along the bottom — volume is good but pricing is tough." (Primary Metals)
• "Although the volume was down compared to last month, the volume was still higher than last year at the same time." (Chemical Products)
• "Hurricane in Houston disrupted production for 10 days at our plant." (Fabricated Metal Products)
• "Delivery issues continue across our range of purchased commodities as suppliers trim inventory commitments." (Electrical Equipment, Appliances & Components)

Manufacturing has fallen off a cliff after holding up well in this financial downturn.  Whether or not we are in a recession is no longer being debated.  Now the question is how bad will things get.  In the previous recessions, PMI has rebounded quickly but after the recession has ended.

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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.

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PMI for August is 49.9% suggesting the economy is still growing

The Institute for Supply Management released their monthly Manufacturing ISM Report on Business today. The Purchasing Manager's Index (PMI) came in at 49.9% for August which was just under the reading of 50% for July. A PMI reading of 49.9% suggests that the manufacturing economy is slightly 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. A PMI in excess of 41.1 percent, over a period of time, generally indicates an expansion of the overall economy." PMI has been under 50 5 times this year, it has been at 50 once, and it has been above 50 just two times.  PMI has averaged 49.5% in 2008. Economists had expected PMI to come in at 50.0%.

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

• "Business is picking up and continues to improve for projects to be constructed in 3rd and 4th quarters 2008." (Electrical Equipment, Appliances & Components)
• "The lower oil prices and stronger dollar are good news." (Fabricated Metal Products)
• "We are contracting our manufacturing skills to companies involved in wind power, coal mining and other energy fields in order to ride the recessionary wave in the rust belt." (Machinery)
• "Material prices continue to rise; however, selling prices of our products have risen as well." (Paper Products)
• "Prices remain predictable ... they keep going up." (Food, Beverage & Tobacco Products)

Manufacturing is continuing to hold up in spite of the softening economy.

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PMI comes in strong at 50.2%

On Tuesday, the Institute for Supply Management released their monthly Manufacturing ISM Report on Business. The Purchasing Managers' Index (PMI) came in at 50.2% for June which was 0.6% higher than May.

A PMI reading of 50.2% suggests that the manufacturing economy is growing just a tad. Per ISM:

"A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. A PMI in excess of 41.1 percent, over a period of time, generally indicates an expansion of the overall economy."

This breaks a streak of 4 months under 50. Economists had expected PMI to come in at 48.6%.

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

• "The shock waves from high crude price continue to put pressure on derivative pricing." (Chemical Products)
• "Business appears to have bottomed out." (Transportation Equipment)
• "Seeing renewed interest in outstanding quotes." (Machinery)
• "Volume is normal, and we are able to recover some of the raw material (steel cost) increases." (Fabricated Metal Products)
• "Commodity bubble is killing profitability." (Food, Beverage & Tobacco Products)
• "Orders have slowed, and prices for metals are going up." (Computer & Electronic Products)

Manufacturing and business are not leading us into a recession. It is the housing crisis and the consumer being hit hard by energy and food prices that is dragging the economy down. Manufacturing has held up its end so far.

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PMI Shows Manufacturing Declining Slightly

The Institute for Supply Management released their monthly Manufacturing ISM Report on Business. The Purchasing Managers' Index (PMI) came in at 49.6% for May which was 1% higher than April.

A PMI reading of 49.6% suggests that the manufacturing economy is barely contracting, while the general economy is growing. Per ISM:

"A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. A PMI in excess of 41.1 percent, over a period of time, generally indicates an expansion of the overall economy."

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

• "Higher prices, tighter supply, longer lead times, shrinking inventory (same as last month)." (Transportation Equipment)


• "Just two months ago we were cautiously optimistic, but now sales inquiries are coming in at a snail's pace." (Machinery)


• "Ethanol-driven agricultural commodity increases continue to pose major hurdles." (Food, Beverage & Tobacco Products)


• "Pricing is skyrocketing for chemicals." (Chemical Products)


• "Current forecast flat for Q2 through Q4 after dip in Q1." (Computer & Electronic Products)

The PMI reading is consistent with the other recent indicators. The economy may be at the brink of recession but is not in a full blown recession.

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PMI is flat for April; not at recessionary levels

The Institute for Supply Management (ISM) released their April 2008 Manufacturing ISM Report on Business today. PMI came in at 48.6% unchanged from March. A reading below 50% indicates that the manufacturing economy is contracting, but a reading over 41.1% indicates that the overall economy is still expanding. This is consistent with the GDP growth of 0.6% that was announced yesterday for the first quarter of 2008. PMI at 48.6% corresponds with a 2.4% increase in real GDP annually.

Here is what some of the respondents are saying:

• "The decline in the value of the dollar is dramatically affecting our material prices because we purchase over half of our material requirements from overseas." (Transportation Equipment)
• "Higher energy rates, unfavorable exchange rates, high levels of inflation in Asia and a drop in demand are challenging our business and supply chain." (Nonmetallic Mineral Products)
• "Continued bio-fuel/spec investor driven inflation of commodities is stifling!" (Food, Beverage & Tobacco Products)
• "Still strong in spite of general business slowdown." (Primary Metals)
• "Oil, oil, oil, energy, energy, energy, metals, metals, metals." (Fabricated Metal Products)

ISM's Employment Index dropped 3.8% to 45.4%. The ISM Prices Index rose 1% to 84.5%. Exports rose for the 65th month in a row to 57.5% from 56.5% and Imports also rose to 48% from 45%.

The PMI report is consistent with other data (GDP, employment, income, retail sales). While we may be at the brink of a recession, we have not yet entered a full blown recession.

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ISM's PMI report for March shows Manufacturing Slowly Contracting

The Institute for Supply Management (ISM) released their March 2008 Manufacturing ISM Report on Business.

PMI came in at 48.6% which was 0.3% above February 2008’s figure. Per ISM:

“A reading above 50 percent indicates that the manufacturing economy is
generally expanding; below 50 percent indicates that it is generally
contracting. A PMI in excess of 41.1 percent, over a period of time,
generally indicates an expansion of the overall economy. Therefore, the PMI
indicates the overall economy is growing and the manufacturing sector is
contracting at this time. Ore stated, "The past relationship between the PMI and
the overall economy indicates that the average PMI for January through March
(49.2 percent) corresponds to a 2.5 percent increase in real gross domestic
product (GDP). In addition, if the PMI for March (48.6 percent) is annualized,
it corresponds to a 2.4 percent increase in real GDP annually."

This month’s reading of 48.6% is still relatively strong. PMI was bolstered by strong exports which were helped by the weak dollar. Inflationary pressures with the ISM Price index registering 83.5 compared to last month of 75.5. 69% of respondents reported higher prices with only 2% reporting lower prices. Per ISM, “A Prices Index above 47.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.”

Here is what some of the respondents were saying:

• "Automotive demand continues to decline." (Fabricated Metal Products)
  


• "Business is still cautiously optimistic." (Machinery)
  


• "High oil prices and material shortages are becoming a real challenge to deal with in day-to-day operations." (Paper Products)
  


• "European business continues robust." (Primary Metals)
  


• "Business continues to be down by 20 percent over the past four months." (Furniture & Related Products)

PMI has dropped below 43 in every recession since World War 2. PMI often drops before or at the beginning of recessions. When PMI drops, it can drop very quickly.

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PMI slows in February but is not at a recessionary level

The Institute for Supply Management issued their February 2008 Manufacturing ISM Report on Business today.

Comments from the respondents showed mixed assessments on the state of the economy :

• "Every year the Chinese New Year break has a bigger impact on January and February." (Machinery)
  


• "Business is good, but there is continued pressure on margins." (Primary Metals)
  


• "Industry appears to be recovering." (Transportation Equipment)
  


• "Plastic prices still on the rise." (Food, Beverage & Tobacco Products)
  


• "Business continues to be sluggish." (Furniture & Related Products)

PMI is the closest watched part of the report. PMI for February was at 48.3% down from January’s reading of 50.7%. A reading above 50 indicates that the manufacturing economy is generally expanding; below 50 indicates contraction. A PMI in excess of 41.1%, over a period of time, generally indicates an expansion of the overall economy. PMI usually reaches its lows during the second half of a recession and can drop rapidly. Per ISM, "If the PMI for February (48.3%) is annualized, it corresponds to a 2.3 percent increase in real GDP annually." PMI may be weakening, but it is not pointing towards a recession. PMI has dropped below 45 by the third month in 8 out of the last 10 recessions.

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The PMI report suggests that manufacturing expanded in January and the overall economy grew for the 75th consecutive month.

According to the Manufacturing ISM Report On Business issued today by The Institute for Supply Management (ISM), the Purchasing Managers' Index (PMI) was at 50.7 up from 48.4 in December and 50 in November. Forecasters had expected the January index to fall to 47.0.

The index explains about 60% of the annual variation in GDP in the last 10 years. A PMI reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. This earlier post goes into more detail.

In January, PMI was impacted the most by Production which was up 6.6% and then by New Orders which was up by 2.6%. The prices index went up 8 points in January “ indicating manufacturers are paying significantly higher prices on average when compared to December.” The Exports Orders index increased by 6 points marking the 62nd consecutive month of growth.

Like last month, there are inflationary concerns in some of the respondent’s comments:

• 
  "We are in a squeeze between supplier pressure to raise prices and customer pressure to reduce prices." (Chemical Products)


• 
  "The softness in residential construction has begun to manifest itself in commercial construction." (Machinery)


• 
  "Commodity prices continue to trade at all-time highs." (Food, Beverage & Tobacco Products)

The U.S. Department of Commerce recently completed its annual adjustment to the seasonal factors used in the monthly ISM Report starting with January 2008’s numbers (reported 2/1/08). Also starting this month, PMI will give equal weight to the five components of PMI. This affected PMI numbers going back to 2000. Before, they used these weights: New Orders, 30%; Production, 25%; Employment, 20%; Supplier Deliveries, 15%; and Inventories, 10%. Here is a chart showing the nominal differences between the new adjusted numbers and the old ones.

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Slowdown in Manufacturing stokes recession fears

According to the Manufacturing ISM Report On Business issued today by The Institute for Supply Management (ISM), the Purchasing Managers' Index (PMI) was at 47.7 down from 50.8 in November and 50.9 in October. Forecasters had expected the December index to hit 51.0. December ended 10 consecutive months of growth in the manufacturing sector.

PMI was developed by the U.S. Department of Commerce (DOC) and the The Institute for Supply Management (ISM) and is part of the Manufacturing ISM Report On Business. The report is released at the beginning of every month reporting data for the previous month. PMI adjusts five components of the Institute's monthly survey and applies weights to calculate a single monthly index number: New Orders, 30%; Production, 25%; Employment, 20%; Supplier Deliveries, 15%; and Inventories, 10%. PMI is an excellent short term economic barometer. According to ISM, there is a close parallel between growth in real Gross Domestic Product (GDP) and PMI. The index explains about 60% of the annual variation in GDP in the last 10 years.

A PMI reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. PMI in excess of 41.9 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 41.9 percent, it is generally declining. According to ISM, the past relationship between the PMI and the overall economy indicates that the PMI average for January through December (52.2 percent) corresponds to a 3.2 percent increase in real gross domestic product (GDP) annually. In addition, if the PMI for December (47.7 percent) is annualized, it corresponds to a 1.8 percent increase in real GDP annually."

4 of the 5 components were showing the manufacturing economy to be contracting (New Orders, Production, Employment, and Supplier Deliveries). Inventories contracted, but were still above the expansion level.

There seems to be some inflationary concerns in these remarks from some of the respondents in the report:

• "Have received a large volume of price increase notices in the last month with increases between 3 percent to as much as 15 percent." (Chemical Products)
• "Business is good, but higher raw material prices are squeezing margins." (Primary Metals)
• "Upward price of raw materials, plus low inventories, is pushing price of resins skyward." (Plastics & Rubber Products)
  

Here is a chart of PMI for the last 40 years. 1989 was the only time the index went below 46 without being in a recession. You can click on the chart for a larger view.

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