ISM: September manufacturing activity climbs, but concerns remain

Stock markets across the globe have gone through a period of persistent volatility over the past three months. Investors, increasingly concerned about the European sovereign debt crisis, mounting U.S. debt and continued signs of weakness in economic activity, have anxiously awaited each new economic report to determine whether another recession will strike.

In a rare bit of positive news, the latest figures from the U.S. Institute for Supply Management (ISM) served as a bright spot amid an otherwise murky economic outlook. The ISM September 2011 Report on Business found the U.S. manufacturing sector expanded during September for the 26th consecutive month. What's more, the overall economy grew for the 28th straight month, according to ISM data.

The U.S. manufacturing sector has helped to lead the economic recovery in the wake of the worst period of economic stagnation since the Great Depression. While other industries have lagged behind, U.S. manufactures experienced a solid uptick in demand output, spurred by technological innovations, among other factors.

The manufacturing sector experienced a precipitous rise in activity during the beginning of this year. Like the overall economy, however, output and demand began to fall during the third quarter, as business and consumer confidence eroded in response to a steady flow of largely negative economic reports emerged.

The ISM September report concluded that the U.S. manufacturing sector expanded in September at a far faster clip than in August. Bradley J. Holcomb, the chair of the ISM, affirmed the broad indicator of U.S. manufacturing activity, the PMI, registered a healthy uptick in September, fueled by increased orders from companies from the around the globe.

September's PMI registered 51.6 percent, which was up from the 50.6 percent figure logged in August. In other positive news, the ISM Production Index edged up in September. In August, the Production Index had contracted into negative territory, spurred the tepid economic climate. Still, it managed to rise to 51.2 percent in September, suggesting businesses had increased orders of material goods.

Furthermore, the New Orders Index remained unchanged from August, according to ISM data. It registered 49.6 percent in September, which some analysts contend might result from the volatility in the global economic order that has played out over the past few months. A figure under 50 generally suggests a contraction within the sector, while one higher than 50 tends to suggest an expansion, ISM analysts asserted.

The ISM profiles 18 discrete manufacturing industries during each of its monthly reports. In September, 12 industries experienced growth, while six reported a contraction in activity. The 12 that underwent growth were wood, petroleum and coal products, food, beverage and tobacco products, apparel, leather and allied products, nonmetallic mineral products, machinery, miscellaneous manufacturing, transportation equipment, plastics and rubber products, printing and related support activities, chemical products and computer and electronic equipment.

ISM survey respondents from a variety of industries reported they are contending with an uncertain economic milieu, one that is threatening future growth and continues to weigh on present activity. Nevertheless, respondents were largely optimistic in their assessment of future growth prospects, and there is a growing sense of optimism the U.S. will manage to avoid entering into a double-dip recession.

"Market is cautious, but still steady," the head of an electrical equipment firm affirmed. Automotive demand is "still strong," the chief executive of a fabricated metal products company said.

Nonetheless, respondents also voiced their concerns regarding the ongoing political wrangling in Washington and the effects of a slowdown in consumer spending, which could potentially hinder future activity, Holcomb said.

"The Production Index registered 51.2 percent, indicating a return to growth after contracting in August for the first time since May of 2009," he said. "Comments from respondents generally reflect concern over the sluggish economy, political and policy uncertainty in Washington, and forecasts of ongoing high unemployment that will continue to put pressure on demand for manufactured products."