The all-important PMI dropped three-tenths of a point to 52.6 last month after climbing a full four points to 52.9 in August. Only a day before the report was released, analysts at Copenhagen-based Danske Bank had forecast the index would climb to 55, one point above the 54 figure they identified as the consensus forecast. In the bank's Weekly Forecast of Oct. 2, they expressed dismay at the actual outcome, saying financial markets were "shaken" by the fallback. "It sent a clear warning that the recovery cannot be taken for granted," they wrote, adding, "[I]t may be that the burden of proof between economic bulls and bears will be shifting for a while with the bears getting more ammunition."

Norbert J. Ore, chair of the ISM's Manufacturing Business Survey Committee, takes a more positive view of the results, noting the PMI remains above 50, the point at which the index shows growth rather than retrenchment. He points out that new orders, production, supplier deliveries, order backlogs and exports also remain above 50. In addition, he says, the number of industries reporting growth increased, a clear sign the recovery is broadening. According to the report, 13 of the 18 manufacturing industries surveyed reported growth, compared to 11 industries a month earlier. The four industries reporting contraction were primary metals, furniture and related products, plastics and rubber products, and machinery.

Danske's analysts agree the results were anything but disastrous, saying, "It was not weak as such, as the new orders index still points to robust growth." In fact, they expect the PMI to continue rising and end the year in the 55-60 range and peak in Q1 due to strong forces from the inventory cycle and improving demand. But the fact that the direction for September was down prompts them to caution that the industry should probably prepare for a period of up-and-down results for the next several months. "[A]fter eight consecutive increases until September, we will probably see a more uneven rise from here," they say. "We continue to believe the ISM will be driven by a huge back-log in manufacturing production compared to demand."