Key index shows manufacturing growth

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Updated Jan 6, 2010

In August, the manufacturing sector grew for the first time in 18 months, according to the Institute of Supply Management’s PMI, a composite index of manufacturing activity. The PMI for August was 52.9 percent, its highest level since June 2007.
In the PMI and its components, an index value of below 50 percent dictates a contracting manufacturing sector, while a value above 50 percent indicates growth. Perhaps even more encouraging for transportation is that a leading indicator within the PMI – new orders – rose 9.6 points in August over July to 64.9 percent, its highest level since December 2004.

“The year-and-a-half decline in manufacturing output has come to an end, as 11 of 18 manufacturing industries are reporting growth when comparing August to July,” noted Norbert Ore, who chairs ISM’s Manufacturing Business Survey Committee. “While this is certainly a positive occurrence, we have to keep in mind that it is the beginning of a new cycle and that all industries are not yet participating in the growth.”

The four-point rise in PMI over July was driven by the significant strength in the new orders index, Ore says. “The growth appears sustainable in the short term, as inventories have been reduced for 40 consecutive months and supply chains will have to restock to meet this new demand.”