The purchasing manager’s index from the Institute for Supply Management dropped to 50.2, the weakest since May 2013, from 51.1 in August and well below the median estimate of 50.6. It was the third forecast miss in a row and the ninth in the last eleven months. Just seven of the 18 industry sectors in the survey expanded, the fewest since December 2012. Fifty is the division between expansion and contraction.
The index of new orders, a barometer of future activity, sank to 50.1 in September from 51.7 the prior month. It was the lowest reading in 34 months.
Every other category in the survey save one was lower or unchanged. Production slipped to 51.8 from 53.6, the lowest level in 29 months, employment fell to 50.5 from 51.2, the weakest in five months. Order backlogs dropped to 41.5 from 46.5, supplier deliveries sank to 50.2 from 50.7, prices skidded to 38.0 from 39.0 and imports fell to 50.5 from 51.5. Business inventories and export orders were unchanged at 48.5 and 46.5 respectively. The one category to gain on the month was customer inventories which rose to 54.5 from 53.0.
A separate survey of manufacturing from London based Market Economics produced a similar result. Its purchasing managers’ index came in at 53.1 for September, essentially unchanged from August’s 53.0 reading, which had been the lowest score since October 2013.
Though manufacturing is a relatively small part of the U.S. economy taking about 15 percent of industrial output, it is, as a producer of high value exports, the most sensitive sector to overseas demand.
Weakness in the factory sector began several months ago among oil and energy related companies which cut back investment as orders fell with the price of crude. The downturn has now spread to computer makers, plastic and machine tool manufacturers undermined by the strength of the dollar and a gathering downturn in much of the rest of the world.
Today’s worrisome ISM index also seconds manufacturing surveys from six Federal Reserve districts, New York, Philadelphia, Chicago, Richmond, Dallas, and Kansas City, all of which have factory activity in their areas contracting in September.
Another report from the Census Bureau showed that construction spending rose 0.7 percent in August, slightly better than the 0.5 percent estimate. However, the July figure was revised down to 0.4 percent from 0.7 percent negating much of the improvement.
Construction spending was up 13.7 percent since the same month last year, the biggest annual gain since March 2006. Residential projects, both single family homes and multiple unit dwelling, led the advance, climbing to the highest level since January 2008.
Chief Market Strategist
WorldWideMarkets Online Trading