By Mark Pender

NEW YORK (MNI) – The slowdown in new orders combined now with a
contraction in backlogs confirm that the U.S. manufacturing sector is
slowing, according to survey head Norbert Ore of the Institute For
Supply Management.

“We’re on a trend of slower growth, now five consecutive months,”
Ore said in a telephone interview with MNI.

Ore was referring to the ISM’s manufacturing index which slipped
nearly two points in September to 54.4. The index hit a cycle peak in
April at 60.4.

“New orders have been slowing for four consecutive months, and when
I see new orders slow, I expect backlogs to decline. But there’s still
nothing in the data right now that says we have a scenario other than
slowing growth.”

New orders are struggling to hold over breakeven 50. September’s
51.1 shows the slowest month-to-month growth of the recovery.

Backlogs, down steeply to a sub-50 level of 46.5, have been
weakening for four months in a row and now show contraction for the
first time of the recovery. September’s five point drop in this index is
the largest since the panic of October 2008.

To make matters worse, inventories are building fast. The inventory
index jumped more than four points to 55.6, a record level for the
just-in-time era.

In what Ore stresses is a strong indication of inventory build, the
inventories relative to new orders, at -4.5, shows its first inversion
since February 2009.

Ore offers several explanations for the build. He said it could be
related to production which he notes has been showing unusual strength
in recent months relative to new orders.

“Production has been catching up. Maybe higher levels of production
demanded more inventory,” he said, noting that the draw in backlogs
suggests production may now have caught up.

He also notes that slack in the customer inventories index, down
one point to 42.5, signals that inventories are too low, that suppliers
don’t have enough on hand.

He also notes that auto retooling, which was pushed into August
this year, may be adding noise to levels and adjustments.

Ore concedes the report’s mixed signals do point to the risk of a
sea change for the sector. He believes manufacturing will ultimately
turn on consumer demand where softness has already been slowing ISM’s
data on the non-manufacturing side.

“The manufacturing index and the non-manufacturing index have been
converging. Non-manufacturing is still very very slow. The problems in
the economy are not in manufacturing, yet anyway. The problem’s been in
non-manufacturing.”

** Market News International New York Newsroom: 212-669-6430 **

[TOPICS: MT$$$$,M$U$$$,M$UEQ$,MAUDS$,MX$$$$]