ISM: Favorable Economy Maintains Manufacturing Growth

Economic activity in the manufacturing sector expanded in October, and the overall economy grew for the 89th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM "Report On Business".

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Economic activity in the manufacturing sector expanded in October, and the overall economy grew for the 89th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

Manufacturing expanded in October as the PMI registered 51.9 percent, an increase of 0.4 percentage point from the September reading of 51.5 percent, indicating growth in manufacturing for the second consecutive month. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

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Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee states, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through October (51 percent) corresponds to a 2.5 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI for October (51.9 percent) is annualized, it corresponds to a 2.8 percent increase in real GDP annually.”

A PMI above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the October PMI indicates growth for the 89th consecutive month in the overall economy, and indicates growth in the manufacturing sector for the second consecutive month.

“Comments from the panel are largely positive citing a favorable economy and steady sales, with some exceptions,” says Holcomb.

Orders, Production and Inventory

ISM’s New Orders Index registered 52.1 percent in October, which is a decrease of 3 percentage points when compared to the 55.1 percent reported for September, indicating growth in new orders for the second consecutive month. A New Orders Index above 52.2 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

ISM’s Production Index registered 54.6 percent in October, which is an increase of 1.8 percentage points when compared to the 52.8 percent reported for September, indicating growth in production in October for the second consecutive month. An index above 51.3 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The Inventories Index registered 47.5 percent in October, which is a decrease of 2 percentage points when compared to the 49.5 percent reported for September, indicating raw materials inventories are contracting in October for the 16th consecutive month. An Inventories Index greater than 42.8 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

ISM’s Backlog of Orders Index registered 45.5 percent in October, a decrease of 4 percentage points when compared to the September reading of 49.5 percent, indicating contraction in order backlogs for the fourth consecutive month. Of the 88 percent of respondents who reported their backlog of orders, 16 percent reported greater backlogs, 25 percent reported smaller backlogs, and 59 percent reported no change from September.

Exports, Imports and Prices

ISM’s New Export Orders Index registered 52.5 percent in October, an increase of 0.5 percentage point when compared to the 52 percent reported for September, indicating growth in new export orders for the eighth consecutive month.

ISM’s Imports Index registered 52 percent in October, which is 3 percentage points above the September reading of 49 percent. This month’s reading indicates growth in imports following two consecutive months of contraction in imports.

The ISM Prices Index registered 54.5 percent in October, which is 1.5 percentage points higher than reported in September, indicating an increase in raw materials prices for the eighth consecutive month. In October, 25 percent of respondents reported paying higher prices, 16 percent reported paying lower prices, and 59 percent of supply executives reported paying the same prices as in September. A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

Employment

ISM’s Employment Index registered 52.9 percent in October, an increase of 3.2 percentage points when compared to the September reading of 49.7 percent, indicating growth in employment in October following three consecutive months of contraction. An Employment Index above 50.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

The monthly Manufacturing ISM Report on Business is based on the survey results of approximately 350 professionals across 18 different industry sectors. The report is released on the first business day of each month and features the PMI Index as its key measure. For more information on the Institute for Supply Management, visit www.ism.ws.

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