US manufacturing activity rose to a 13-year high in September as hurricanes Harvey and Irma spoiled activity of supply chains but boosted demand for manufactured goods.
The Institute for Supply Management (ISM) said that the nation’s manufacturing index climbed from 58.8 percent in August to 60.8 percent in September, its highest level since May 2004.
A reading over 50 percent in the ISM index suggests an expansion within the sector, which covers for about 12 percent of the US economy, and is measured by factors, such as sales, output, and hiring. Anything above 55 percent is considered exceptional.
Economist John Ryding stated that the gain is most likely related to the aftermaths of the hurricanes but nonetheless, manufacturing growth is strong.
The figures also surpassed economists’ expectations and showed that the manufacturing sector was able to withstand the impact of two of the recent major hurricanes, Harvey and Irma.
ISM said that Harvey and Irma had caused supplies and pricing issues in the chemical products division, whereas makers of nonmetallic mineral goods stated that while the storms were improving sales, they were also boosting prices on raw materials.
As a result, ISM’s supplier deliveries sub-index added 7.3 points to 64.4 percent last month, its highest level since July 2004.
Paid sub-index jumped to 9.5 points on the month to 71.5 percent, the biggest since May 2011, reflecting higher prices for raw material pieces, such as chemical and metal products.
Index for new orders were up by 4.3 points to 64.6 percent from 60.3 percent in August, while hiring surged 0.4 to 60.3 percent, its strongest result since June 2011.
Production increased by 1.2 points to 62.2 percent and new export orders grew in a much faster pace in September as well.
US Manufacturing and Economic Outlook
Excluding the hurricanes’ effect, outlook for manufacturing remains positive as 17 out of the 18 industries reported growth in August, a surprisingly a high number that shows the core strength of an economy that has been on the rise for more than eight years.
Two manufacturing executives said that business is strong and that they had a really good year. The huge progress was due to the increase in new orders.
The downside however, is that several executives believed that hurricanes Irma and Harvey would badly affect their businesses in the short term given that these two hurricanes have disrupted supply chains and in some cases, have raised costs for manufacturers.
There is also the possibility that the two storms would cut as much as 60 percent from gross domestic product (GDP) growth in the third quarter. Further weakness is likely to occur, following hurricane Irma’s impact in Florida on early September.
The US economy grew on a year-to-year basis by 3.1 percent in the second quarter from April to June, the fastest rate in more than two years and is on track to finish the year on a good note. Unemployment was at 4.4 percent and is close to hitting a 16-year low.
While there is the lingering possibility that the economy might decline, economist Scott Anderson believed that the data presented indicates that an economic expansion is very much possible, despite the short-term interference of the hurricanes.