Manufacturing Struggles To Grow In October

At 50.9, the sector is balancing between growing and declining as the slowdown in the financial, housing and transportation segments has spilled over into manufacturing.

TEMPE, Ariz. — Although slower, economic activity in manufacturing continued to expand in October, according to the Institute for Supply Management (ISM).
“Manufacturing growth slowed in October to its lowest level since March 2007. While the new orders index continued to grow and the production index fell below 50 for the first time since January 2007, the employment index grew slightly, signaling continuing strength in manufacturing employment,” said Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee. “It does appear that the impact of the slow don in the financial, housing and transportation segments has spilled over into manufacturing with the exception being continued strength in new export orders.”
At 50.9 percent, the PMI was down 1.1 percent from September. A reading above 50 percent indicates activity in the sector is expanding.
New orders reached 52.5 percent, down 0.9 from September. Industries reporting an increase in new orders include: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Paper Products; Computer & Electronic Products; and Chemical Products.
Production dropped 5 percent to 49.6 percent, reversing an eight-month trend of production growth.
Employment reached 52 percent, up 0.3 from September.
Supplier deliveries was down 1.3 percent to 50.6 percent. A reading above 50 signals slower deliveries.
Inventories rose 5.6 percent to 47.2 percent, marking the 15th consecutive month of inventory liquidation.
At 63 percent, the prices index showed manufacturers are paying higher prices on average when compared to September.
Backlog of orders was down 5 points to 46 percent, a significant change from the modest growth in recent months.
New export orders rose 2.5 percent to 57 percent. Imports decreased 5.5 percent to 47.5 percent.
“October’s ISM index is right on the edge between decline and growth,” said Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI.  “The decline in the production and backlog indexes and increase in prices is worrisome. The trade indicators, however, are the most positive aspects of the report.  Imports are contracting while exports are growing faster.  With major pieces of the industrial sector declining (e.g. housing-related products, motor vehicles, diesel engine machinery) and the petrochemical industry being cost squeezed by high oil prices, the very positive trade picture may be what is keeping the industry’s head slightly above water.”
"Overall, the report was confusing at best," added Ore. "On one hand, you have the exports versus imports and employment, which are good news. On the other, you have the drop in production. It's a cloudy picture."
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