Summary
Today's report from the Institute for Supply Management showed a slight slowing in manufacturing activity during September. Although price pressures eased a bit during the month, they still remained at historically high levels.
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Earlier today, the Institute for Supply Management reported that its index measuring the economy's September manufacturing activity ("PMI") came in at a reading of 58.5, down slightly from August's 59.0. The September result was right on the consensus forecast.
This index is configured such that readings above 50.0 indicate sector expansion. Readings below this value are consistent with contraction.
Wall Street immediately used the PMI's "strength" as at least partial justification for the large markup in stock prices. However, the contention certainly took some license with reality.
First, the PMI fell, which marked two months in a row of lower results. Next, September's 58.5 reading, which indeed denoted decent manufacturing-sector strength, was still well below the index's recent peak -- 66.2 in December of last year.
While the overall index continued to be reasonably buoyant, its price measure remained in territory surely qualifying as "troublesome." The price component came in at a reading of 76.0. Although this was down 5.5 points from August, 76.0 clearly remains troublesome from a historical perspective. As in the overall index, readings above 50.0 indicate expansion.
In fact, September was the 31st consecutive month in which this measure showed rising prices. In October of last year, the price component stood at a much lower 58.5, versus the September 2004 result of 76.0.
ISM reported that 55% of its survey respondents reported higher prices during September, while 3% reported lower ones. The August results were 67% and 4%, respectively. Thus, the shift in skew from late last year continues. For example, in October 2003, the numbers were 26%/9%.
To illustrate how the numbers have been trending, the following table examines overall and price data over the last 19 months. The final section of this missive breaks out specific commodities that were up or down in price during September, as reported to ISM by its survey respondents.
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INSTITUTE FOR SUPPLY MANAGEMENT PMI INDEX
-- TOTAL INDEX AND PRICE COMPONENT
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Respondents Reporting
Higher, Lower, or
Unchanged Prices
Month/ Overall Price ---------------------
Year Index Index Higher Lower Unch.
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09/04 58.5 76.0 55% 3% 42%
08/04 59.0 81.5 67% 4% 29%
07/04 62.0 77.0 58% 4% 38%
06/04 61.1 81.0 66% 4% 30%
05/04 62.8 86.0 74% 2% 24%
04/04 62.4 88.0 77% 1% 22%
03/04 62.5 86.0 73% 1% 26%
02/04 61.4 81.5 65% 2% 33%
01/04 63.6 75.5 54% 3% 43%
12/03 66.2 66.0 37% 5% 58%
11/03 62.8 64.0 33% 5% 62%
10/03 57.0 58.5 26% 9% 65%
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09/03 54.7 56.0 21% 9% 70%
08/03 55.0 53.0 19% 13% 68%
07/03 52.6 53.0 21% 15% 64%
06/03 50.4 56.5 26% 13% 61%
05/03 50.0 51.5 21% 18% 61%
04/03 46.2 63.5 37% 10% 53%
03/03 46.6 70.0 47% 7% 46%
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Next Tuesday (10/5), ISM will report its index covering activity in the economy's non-manufacturing sector. In recent months, this measure's price component also has shown some disquieting results.
Commodities Reported Up in Price During September
ABS; Alloy, 2nd month; Aluminum, 11th month; Aluminum Extrusions, 2nd month; Aluminum Products (various forms); Bags; Caustic Soda, 5th month; Chemicals, 8th month; Copper Products, 2nd month; Corrugated, 8th month; Electricity; Energy, 9th month; Fasteners; Freight, 7th month; Fuel; Fuel Oil, 9th month; Gasoline, 9th month; HDPE; Latex, 2nd month; Lumber, 5th month; Metals; Natural Gas*, 26th month; Oil; Packaging, 4th month; Paper, 7th month; Plastic Products (various forms), 8th month; Plastic Resins, 2nd month; Plastics, 2nd month; Polyethylene; Polyethylene Resin; Polypropylene, 2nd month; Polypropylene Resin; Propylene Glycol; Resin, 2nd month; Stainless Steel; Stainless Steel Products (various forms), 3rd month; Steel, 12th month; Steel Products (various forms), 2nd month; and Transportation.
Commodities Reported Down in Price During September
Corn, 2nd month; and Natural Gas*, 3rd month.
*Reported as both up and down in price.
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