Manufacturing activity ramped up in September as the ISM manufacturing index reached a cycle high. And while some gains can be attributed to increased activity following hurricanes Harvey and Irma, the data suggest underlying strength in the sector, according to an analysis by Wells Fargo Chief Economist John Silvia and Wells Economist Sarah House.
September’s ISM index increased to 60.8, while supplier deliveries posted the largest gain, increasing 7.3 points to 64.4. Bottlenecks from the Gulf area storms have grown beyond the chemicals industry to include the paper products and food, beverage and tobacco sectors. “That said, supplier deliveries have been lengthening over the year, consistent with improving manufacturing activity,” the Wells analysts said.
The production index had its fourth consecutive month of above-60 readings in September, while new orders jumped also, suggesting strength should continue for at least the next couple of months, Wells said.
Manufacturers have also been adding to inventories to meet the growing demand. “Although much of the ‘hard’ data on inventories has yet to become available, the ISM signals the strongest quarter of inventory building at the nation’s factories in more than two years,” Silvia and House said. “Moreover, the buildup appears intentional, as customer inventories were reported too low for a third consecutive month.”
Input costs are also rising thanks to the recent storms.
Manufacturing payrolls have gained by an average of 17,100 jobs per month so far this year, while the ISM employment index points to continued strength for September, Wells said. “We look for the factory sector to add to payroll growth in Friday’s employment report, but note that hiring disruptions due to the recent hurricanes generate the potential for readings that may not be indicative of the underlying trend in factory hiring.”
– Nicholas Stern, managing editor