The Institute for Supply Management’s PMI declined to 50.2 percent in September, its lowest point since December of 2012. The PMI is hovering just above the point of contraction: a reading above 50 indicates manufacturing is growing; a reading below 50 indicates a contraction.
“We are obviously at a weak point with 50.2 being the lowest since December of 2012 and new orders at their lowest since November of 2012,” said Brad Holcomb, chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee. New orders decreased by 1.6 percent from August to reach 50.1 percent in September. “However, if I look at a chart of the PMI since the  recession it looks like a two-humped camel; in July 2009 we reached a high point with the PMI almost at 60; then it came down in November of 2013. It went back up again and now we are at the low point of the the second ‘hump.’ We have been here before and if history repeats itself we can bounce back up. I remain rather hopeful for a strong Q4 -- which we just started.”
Participants in the ISM’s monthly survey cited everything from the strong U.S. dollar to the avian flu as reasons for concern. “The high value of dollar is affecting global procurement pricing,” said a manager in the computer and electronic products sector. That's a double whammy for the industry: “The high value of the dollar is limiting our ability to export,” Holcomb said; at the same time, raw materials prices are going down so foreign companies aren’t making a lot of money selling those into the U.S. The prices index registered 38 percent, a decrease of 1 percentage point from the August reading of 39 percent, indicating lower raw materials prices for the 11th consecutive month.
The ISM’s production index registered 51.8 percent, 1.8 percentage points below the August reading of 53.6 percent. The employment index registered 50.5 percent, 0.7 percentage point below the August reading of 51.2 percent. Backlog of orders registered 41.5 percent, a decrease of 5 percentage points from the August reading of 46.5 percent. The new export orders index registered 46.5 percent, the same reading as in August.
The beginning of the fourth quarter is typically a ramp-up period for the electronics industry as consumer companies prepare for the holiday gift-giving season. However, executives on quarterly earnings calls with analysts continue to say the industry is less cyclical—and less seasonal—than it has ever been. The ISM adjusts its indexes for seasonality. “Sales in the consumer industry are not robust, but that doesn’t characterize the entire industry,” Holcomb said, pointing out that Apple’s latest iPhone is doing extremely well in China. “I think most of [the pessimism] we are seeing is consumers are not sure what is coming and the [U.S. Federal Reserve Board] keeps us guessing about interest rates and China is worrisome.”
Of the 18 manufacturing industries followed by the ISM, seven are reporting growth in September in the following order: printing and related support activities; textile mills; furniture and related products; food, beverage and tobacco products; miscellaneous manufacturing; paper products; and nonmetallic mineral products. The following are comments from participants in the ISM’s monthly manufacturing business survey:
- “Revenues and profits in our industry continue to [be] impacted by low crude and gas prices.” (Petroleum and Coal Products)
- “North American business steady. International business trending bearish.” (Chemical Products)
- “High value of dollar is affecting global procurement pricing.” (Computer and Electronic Products)
- “Concerns about China downturn and its effect on our consumer confidence.” (Fabricated Metal Products)
- “Overall business is slowing. Consumers are nervous. Not sure what is coming next.” (Transportation Equipment)
- “Business is picking up.” (Furniture and Related Products)
- “The orders from customers seem to be slowing a bit from the first part of the year. We have promises but not actual Purchase Order numbers.” (Nonmetallic Mineral Products)
- “Sales revenue and profitability improving slowly. Getting close to 2015 budget/sales plan. Not seeing consistent trends up or down.” (Electrical Equipment, Appliances and Components)
- “Continue to feel impact of oil and gas market slowdown. Aerospace demand has also been slower than expected. Consumer Electronics not robust.” (Primary Metals)
- “Concern for AI [Avian Influenza] for poultry when bird migration begins.” (Food, Beverage and Tobacco Products)