September Reveals First Manufacturing Expansion Since May

In the words of Adam Sarhan, the chief executive of New York’s Sarhan Capital, “We’re not quite at the point where things are good, but this indicates strongly that things are not so bad.”

According to the Institute for Supply Management’s September 2012 Manufacturing Report on Business, the Purchasing Manager’s Index (PMI) is 51.5 percent, a statistic 1.9 percentage points higher than August.  This is welcome news for the U.S. economy which has suffered protracted decline for the past three months in domestic manufacturing.  The Institute’s system is based on a deviation scale beginning at 50 percent, with readings below 50 percent signifying economic contraction and readings above 50 percent signifying expansion. 50 percent itself indicates no change.

This positive news extends into several different subsectors of the national economy, registering improvement measured on ISM’s Employment, Price, and New Orders Indices. Additionally, Bradley J. Holcomb, chief of the ISM Manufacturing Business Survey Committee states that despite three months of contraction, “the past relationship between the PMI™ and the overall economy indicates that the average PMI™ for January through September (52.1 percent) corresponds to a 3.2 percent increase in real gross domestic product (GDP). In addition, if the PMI™ for September (51.5 percent) is annualized, it corresponds to a 3 percent increase in real GDP annually.”

Apparently, the previous decline in US manufacturing from May through August, reported by PAGE earlier, has proven to be more volatile a pattern than previously thought. Chairman of the Federal Reserve Ben Bernanke has pointed to a nationally “flagging recovery” as a sign that more action must be taken, such as the third bond-buying program enacted last month. The U.S. dollar and treasuries prices have also experienced recent decline.

Although there are still many related obstacles to overcome, particularly within the weakening international trade and fiscal sector, this ISM report highlights examples of revitalization in the American economy. Looking to the future, the U.S. can hopefully continue a trend upward by strengthening domestic manufacturing and encouraging consumer activity to boost business new orders and production. Perhaps current increases can help to solidify growth and begin a new, positive pattern for American manufacturing.

Posted by: Sophia Higgins

Sources: Institute for Supply Management, Reuters, Financial Post

Photo credit: untitled @ j o s h’s photostream courtesy of Flickr user j o s h

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