US manufacturing ISM rebounds from August dip

Growth in the US economy's manufacturing grew in September following a contraction in August as the overall economy grew for the 88th consecutive month, according to data released on Monday.

The Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index rose to 51.5 from 49.4 in August, above an expected 50.4 rise.

Meanwhile, the employment index increased by 1.4 percentage points from the August reading to 49.7, a three month high, while new orders index rose to 55.1 from 49.1.

The production index was up to 52.8 from 49.6, while the prices index remained flat in September at 53, which indicated higher raw materials priced for the seventh consecutive month.

Inventories of raw materials also increased to 49.5, an increase of 0.5 percentage points from August.

Analyst Paul Sirani at Xtrade, said: “It has been a tough few months for US manufacturing, so Janet Yellen and her colleagues at the Fed will be happy to see an above expectations rise on the ISM purchasing manager’s index gauge for September.

“The reading signifies a return to expansion for the manufacturing sector, and will provide another tick for the Fed’s widely-expected interest rate hike later this year.”

However, he said that the rate increase remains contingent on stable growth, and as the US enters the final weeks of a” highly contentious” presidential election, “unpleasant surprises could be just around the corner”.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the rise in the manufacturing index was a “relief” as it reversed two thirds of the unexpected drop in August and was better than implied by most regional surveys.

But he stressed that the index would need to see another “decent month before we can be completely sure”, but for now the data appeared to supported the view that the August drop was a fluke, and that the combination of rebounding energy capital expenditure, stronger non-energy capital expenditure, and demand from domestic consumers and overseas is supporting US manufacturing.