US manufacturing begins recovery, key survey says

01 September 2009 17:25  [Source: ICIS news]

WASHINGTON (ICIS news)--US manufacturing activity expanded in August, ending an 18-month decline with a significant boost in new orders for produced goods, including chemicals, a key index revealed on Tuesday.

The Institute for Supply Management (ISM) said its closely watched purchasing managers index (PMI) rose by four points in August to 52.9%, the highest measure since June 2007.

“The year-and-a-half decline in manufacturing output has come to an end,” said Norbert Ore, chairman of the institute’s survey committee.

The US recession is generally said to have begun in December 2007.

Each month the ISM committee surveys purchasing managers in 18 key industries on ten business performance measures to compile the PMI. A PMI reading of 50% or higher indicates that the nation’s manufacturing sector is generally expanding.  An index below 50% indicates contraction.

July’s PMI was 48.9%.  Although that reading marked another month of manufacturing contraction, it also was the latest relative improvement in the index, which saw a low point of 32.9% in December 2008.

The well-being of the US manufacturing sector is crucial to chemicals production because many manufacturing processes or end-use products are major consumers of chemicals.

Ore noted, however, that while the index gain in August “is certainly a positive occurrence, we have to keep in mind that it is the beginning of a new cycle and that all industries are not yet participating in the growth”.

He said that 11 of the 18 surveyed industries reported growth in August, including chemicals. Among the other ten growth sectors were several that are important downstream consumers of chemicals and plastics, such as textiles, paper products, computers and electronics, transportation equipment, appliances and fabricated metal products.

Plastics and rubber products were among those industries still in contraction, however. Other manufacturing sectors still in recession include primary metals, furniture, wood products and machinery, the institute said.

The four-point jump in the August PMI was attributed chiefly to what Ore called “significant strength” in the new orders index, which rose by 9.6 points in one month to 64.9%, the highest level since December 2004.

In addition to the positive news of the PMI upturn in August, Ore said the manufacturing recovery “appears sustainable in the short term, as inventories have been reduced for 40 consecutive months and supply chains will have to re-stock to meet this new demand”.

The apparent beginning of a recovery in the broad manufacturing sector has developed sooner than the institute had anticipated.  As recently as March this year, purchasing managers surveyed by ISM indicated that a manufacturing recover was not likely this year.

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