U.S. Manufacturing Activity Slowed Again In October

Manufacturing growth in the U.S. fell to its lowest level in more than three years in October, as new orders, production and backlog all declined.

Manufacturing growth in the U.S. fell to its lowest level in more than three years in October, as new orders, production and backlog all declined.

The latest Manufacturing ISM Report on Business came in at 51.2 in October, down from September’s 52.9 and the lowest reading since June 2003. New orders declined by 2.1 percentage points, to 52.1, and production dropped 4.2 percentage points, to 51.9.

While the latest PMI reading was lower than 53.5 that economists had been predicting, the data show that economic activity within manufacturing has grown for 41 consecutive months now. (A reading above 50 indicates the manufacturing economy is generally expanding, while below 50 indicates it’s generally contracting.)

The eight industries reporting growth last month were: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Computer & Electronic Products; Food, Beverage & Tobacco products; Nonmetallic Mineral Products; Furniture & Related Products; Chemical Products; and Paper Products.

On the employment front, the ISM’s index came in at 50.8 in October, up from September’s 49.4. Meanwhile, the delivery performance of suppliers to manufacturers was slower for the 40th straight month. The three industries reporting slower supplier delivery last month were: Computer & Electronics; Nonmetallic Mineral Products; and Transportation Equipment.

There was some good news in the latest report; the prices index fell sharply, to 47, showing manufacturers are paying lower price than they were in September. The ISM said that while 58 percent of supply executives reported paying the same prices, and 24 percent said they were paying lower prices, just 18 percent said prices were higher than in September.

Norbert Ore, chair of the survey, said in an interview that the higher interest rates imposed by the Federal Reserve in the past 18 months or so are starting to show through in the form of lower prices paid by manufacturers, as they’re seeing a decline in a number of major commodities prices. The rate hikes are also having the desired effect of slowing down the U.S. economy.

“The big question now is what happens to business spending,” Ore said. “If that continues the economy should hold up nicely and we’ll get the soft landing we’re looking for. If business spending falls off, I’m not sure consumers by themselves can really hold it up.”

Commenting on the ISM numbers, Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI, said: “The rapid decline in housing activity and a decline in motor vehicle production are major manufacturing markets that will lead to little manufacturing production growth in the final months of this year and early 2007. Although business investment continues to grow at a rapid rate, it is decelerating in its rate of growth and cannot offset the depressing impact of declining big-ticket consumer goods spending. A side benefit of slower industrial growth, though, is an easing in commodity prices.”

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