Manufacturing Growth Ticked Lower in October, but Still Robust

The Institute for Supply Management (ISM) has released its reading on manufacturing activity in October. While it is slightly lower than the prior reading, the reality is that it was at a 13-year high in September. The ISM’s PMI manufacturing index came in at 58.7 in October, lower than the 59.0 consensus expected by Dow Jones.

September’s reading was 60.8, the highest back to May of 2004. Of the 18 manufacturing industries, 16 of them reported growth in October.

The pricing index, which is a degree that can be used to measure inflation, was 68.5 in October, down from 71.5 in September. While this was a solid three-point drop, it was well above the 50.0 breakeven and indicates higher raw materials prices for the 20th consecutive month.

The employment index, again for manufacturing, was 59.8 in October, compared with 60.3 in September.

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Production and order metrics were unilaterally down from September, but most were at strong readings. The new orders index was 63.4 in October, versus 64.6 in September. Production’s reading fell to 61.0 in October from 62.2 in September, and inventories fell to 48.0 from 52.5. Supplier deliveries fell by three points to 61.4 in October.

The ISM report on manufacturing went on to say:

Comments from the panel reflect expanding business conditions, with new orders, production, employment, order backlogs and export orders all continuing to grow in October, supplier deliveries continuing to slow (improving) and inventories contracting during the period. Prices continue to remain under pressure. The Customers’ Inventories Index remains at low levels.

While we have used 50.0 as a metric to define growth or contraction — above being growth and below being contraction — the ISM’s report now shows that a PMI reading above 43.3%, over a period of time, generally indicates an expansion of the overall economy. Based on that observation, the October PMI represented growth for 101 consecutive months in the overall economy, and it was the 14th straight month of growth in the manufacturing sector.

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