If the economy is a giant ship navigating the sea of data, then the manufacturing Purchasing Managers' Index (PMI) serves as the crucial indicator in its crow's nest. This metric not only reflects the current health of the manufacturing sector but also signals future economic trends. In September, as the U.S. manufacturing sector faced the dual impact of Hurricanes Harvey and Irma, what direction would this economic vessel take?
The latest ISM (Institute for Supply Management) manufacturing report provides the answer: Despite supply chain disruptions and rising prices, U.S. manufacturing activity continued its expansion in September, with the PMI reaching 60.8—the highest level since August 2011. This figure significantly surpasses the 50-point threshold that separates expansion from contraction, exceeding both the 12-month average of 56.2 and the 2017 average of 57.1. This marks the 13th consecutive month of PMI growth and the 100th straight month of overall economic expansion in the United States. However, beneath this impressive performance lie hurricane-related challenges and concerns about the future direction of manufacturing.
Broad-Based Growth Across Manufacturing Sectors
The report shows that 17 of the 18 manufacturing industries tracked by ISM reported growth in September. These include textile mills; machinery; nonmetallic mineral products; transportation equipment; plastics and rubber products; paper products; wood products; computer and electronic products; food, beverage and tobacco products; chemical products; fabricated metal products; miscellaneous manufacturing; petroleum and coal products; apparel, leather and allied products; printing and related support activities; electrical equipment, appliances and components; and primary metals. Only the furniture and related products sector contracted during the month.
This widespread growth demonstrates the continued strength of America's manufacturing base, with diverse industries actively participating in the economic recovery. However, it's worth noting that even growing sectors experienced varying degrees of hurricane-related impacts.
Key Indicators Show Robust Expansion
All core indicators in the September report showed positive growth, further confirming the manufacturing sector's strong performance:
- New Orders: The engine of manufacturing, the new orders index surged 4.3% to 60.8, marking 13 consecutive months of growth. Since December 2016, this index has averaged 61.6%, with sustained strong demand providing a solid foundation for production.
- Production: The production index rose 1.2% to 62.2, also extending its growth streak to 13 months. Despite weather-related challenges and supplier delivery constraints, most industries maintained robust output.
- Employment: The employment index edged up 0.4% to 60.3, continuing 12 months of expansion and reaching its highest level since June 2011.
- Supplier Deliveries: The supplier deliveries index jumped to 64.4, up 7.3 percentage points from August—the highest reading since July 2004—indicating slower delivery speeds that reflect both strong demand and potential supply bottlenecks.
- Inventories: The inventories index fell 3% to 52.5, suggesting companies are actively managing stock levels amid changing demand patterns.
- Prices: The prices index soared 9.5% to 71.5, continuing a 19-month upward trend that signals rising costs for raw materials and intermediate goods.
- Backlog of Orders: The backlog index increased 0.5% to 58.0, indicating healthy order books that should sustain production in coming months.
Hurricane Aftermath: Supply Chain Strains and Price Pressures
Despite the overall optimism, the impacts of Hurricanes Harvey and Irma remain evident. Comments from ISM survey participants reveal widespread operational disruptions across multiple industries.
A chemical products company reported hurricane-induced supply chain and pricing issues, while a plastics manufacturer expressed concerns about rising costs despite strong business conditions. These accounts reflect both direct and indirect hurricane effects, including material shortages, transportation delays, and labor constraints.
Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee, noted that new orders and supplier deliveries drove much of September's PMI improvement, though inventory reductions offset some potential gains. "The question is, what would these numbers have looked like without the hurricanes?" Fiore said, highlighting widespread supply assurance and pricing challenges in survey responses.
Fiore emphasized that 14 of 18 industries reported supplier delivery difficulties, with at least half attributing these problems to hurricane impacts. Without the storms, he estimated September's PMI might have ranged between 57 and 59.
Regarding the 9.5% price increase, Fiore connected this directly to inventory declines and delivery challenges: "If you're having difficulty with supplier deliveries, your raw material inventories are going down." While current production remains strong at 62.2, he cautioned that persistently low inventories and slow deliveries could eventually constrain output and employment.
Future Outlook: Navigating Challenges and Opportunities
The September ISM report demonstrates U.S. manufacturing's resilience amid natural disasters, while also exposing vulnerabilities in supply chains and pricing pressures. Looking ahead, the sector faces multiple challenges:
- Continued supply chain disruptions from hurricane recovery efforts
- Rising material costs that could squeeze profit margins
- Ongoing skilled labor shortages
- Uncertainty surrounding trade policy changes
However, significant opportunities also emerge:
- Technological advancements in automation, AI, and data analytics
- Sustained domestic demand from economic recovery
- Potential infrastructure investment programs
- Competitive advantages from lower energy costs
The U.S. manufacturing sector now enters a complex phase where hurricane-related challenges test its adaptability even as fundamental strengths remain intact. The sector's ability to maintain global leadership will depend on continued innovation, supply chain optimization, and supportive policy environments.