ISM Manufacturing Index Exhibits Recovery Signs

The US economy’s main engine, the industrial sector, is still contracting. However, there are indicators of progress. The purchasing managers index, or PMI, published by the Institute for Supply Management registered 49 in September as opposed to 47.6 in August.

According to the data presented on Monday, the US manufacturing sector has been in decline for 11 straight months. A number greater than 50 denotes expansion. FactSet’s survey of economists predicted a reading of 47.9.

The ISM Manufacturing reading constitutes a first piece of good news this week. Compared to earlier in the year, things are shrinking more slowly. Also good news, that.

“Companies are still managing outputs appropriately as order softness persists,” said Tim Fiore, head of the ISM PMI survey, in a news release. “However, the month-over-month PMI improvement in September is clearly positive.”

Demand is still weak, but production execution has improved since August as businesses of the panellists get ready for the end of the fiscal year and the fourth quarter.

The index for new orders, a predictor of future growth, came in at 49.2, up from 46.8 in August. The index for new orders has been below 50 for the past 13 months.

The reading is a little better than expected, but not all that surprising. Caterpillar (ticker: CAT) shares are up about 0.2%. The Industrial Select Sector SPDR ETF (XLI) is down about 0.4%. The S&P 500 is flat and the Dow Jones Industrial Average is off about 0.2%.

Coming into Monday trading, the Industrial Select Sector SPDR ETF (XLI) was up about 2% year to date, a weakening economy has weighed on investor sentiment.