U.S. ISM manufacturing index rises in September, manufacturing to make modest progress in months ahead

The U.S. ISM manufacturing index rose in September and came in above consensus expectations. The index was up 2.1 points, rising to 51.5, as compared to consensus projection of a more modest rebound to 50.4. Most of the subcomponents within the index saw increases. New orders rose to 55.1, while backlog of orders and production rose to 49.5 and 52.8 respectively. The import sub-index also saw a rise of 2 points; however it remained in contraction territory at 49. On the other hand, new exports index dropped 0.5 points, but stayed in the expansionary territory at 52.

The sub-component for prices paid continued to be unchanged at 53, whereas employment index was up 1.4 points, rising to 49.7. The spread between new orders and inventories rose sharply to 5.6 from 0.1. Out of 18 industries, only 7 registered growth, led by non-metallic minerals furniture, textiles and food & beverage.

The Institute for Supply Management (ISM) manufacturing index recovered in September after falling into the contraction territory in August. It helped eased certain anxiety of the industry health of the U.S. Encouragingly, most key components registered strong gains with leading indicators signalling towards continued progress ahead, said TD Economics in a research note.

External environment seems to be a bit more constructive. September PMIs throughout Asia and Europe have been higher, indicating that global manufacturing activity is on a moderate upward trend. The Brexit vote has not materially affected the sector at this point.

However, the U.S. dollar has continued to remain quite stable in recent months with the currency expected to remain rangebound in the future given the quite muted pace of any Fed hikes, stated TD Economics.

“Alongside diminishing drag from energy sector investment, with rig counts rising modestly in recent weeks, and resilient domestic demand, we expect U.S. manufacturing to continue to make modest progress in the coming months”, added TD Economics.