Large Decline in U.S. Manufacturing for September

ISM reports lowest level for index since Oct. 2001

Manufacturing contracted in September as the Institute for Supply Management's (ISM) PMI registered 43.5%, 6.4 percentage points lower than the 49.9% reported in August. This is the lowest reading since October 2001 when the PMI registered 40.8%. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

"The PMI indicates a significantly faster rate of decline in manufacturing during September, marking a departure from the 2008 trend toward negligible growth or contraction each month. This month's report is showing prices rising at a much slower rate, as the Prices Index fell to the lowest level in 21 months. Export orders continued to increase, but at a slower rate than in August," said Norbert J. Ore, C.P.M., chair of the ISM Manufacturing Business Survey Committee.

Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI commented that the drop is both sudden and substantial. "The manufacturing industry has been in recession since October of 2007 and has seen moderate declines in production until recently. A broad-based and deep fall in the September report indicates that the energy shock, housing collapse, and financial crisis has reached a point where the recession has spread to the general economy.

"Spring 2008 tax rebates provided only temporary relief, as they were designed, but did nothing to correct the underlying problem of over-indebted households, falling housing and stock market prices, and an overleveraged financial system. Unfortunately, we do not expect any recovery in manufacturing activity until mid 2009."

ISM's Employment Index registered 41.8% in September, which is a decrease of 7.9 percentage points when compared to the 49.7% reported in August.

The ISM Prices Index registered 53.5% in September compared to 77% in August, indicating manufacturers are paying higher prices on average when compared to August, but that prices are increasing at a much slower rate. While 30% of respondents reported paying higher prices and 23% reported paying lower prices, 47% of supply executives reported paying the same prices as the preceding month.

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