Quality Magazine

Economy Grows for the Fourth Consecutive Month

September 3, 2009

TEMPE, AZ - Economic activity in the manufacturing sector expanded in August, following 18 consecutive months of contraction, and the overall economy grew for the fourth consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

The report was issued September 1 by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee. “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. 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 August index of 52.9% is the highest since June 2007. The 4 percentage point increase was driven by significant strength in the New Orders Index, which is up 9.6 points to 64.9%, the highest since December 2004. The growth appears sustainable in the short term, as inventories have been reduced for 40 consecutive months and supply chains will have to re-stock to meet this new demand.”

Manufacturing’s 18 consecutive months of decline ended in August as the PMI registered 52.9%, which is 4 percentage points higher than the 48.9% reported in July. This is the highest reading since June 2007, when the index also registered 52.9%. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

A PMI in excess of 41.2%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the fourth consecutive month in the overall economy, as well as expansion in the manufacturing sector for the first time since January 2008. Ore states, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through August (42.2%) corresponds to a 0.3% increase in real gross domestic product (GDP). However, if the PMI for August (52.9%) is annualized, it corresponds to a 3.7% increase in real GDP annually."

The data presented in the report is obtained from a survey of manufacturing supply managers based on information they have collected within their respective organizations. ISM makes no representation, other than that stated within its release, regarding the individual company data collection procedures. Use of the data is in the public domain and should be compared to all other economic data sources when used in decision-making.

The Manufacturing ISM Report On Business is published monthly by the Institute for Supply Management. The Institute for Supply Management, established in 1915, is the largest supply management organization in the world as well as one of the most respected. ISM’s mission is to lead the supply management profession through its standards of excellence, research, promotional activities and education. This report has been issued by the association since 1931, except for a four-year interruption during World War II.

The next Manufacturing ISM Report On Business featuring the September 2009 data will be released at 10 a.m. (ET) on Thursday, October 1, 2009.