ISM Reports Manufacturing Kept Growing in October

Purchasing index reaches highest level in more than two years.

The U.S. manufacturing sector expanded for the fifth consecutive month in October, the Institute for Supply Management reported today, apparently largely unharmed by the federal government shutdown.

ISM’s purchasing managers index (PMI) registered 56.4, its highest level since April 2011, and up 0.2% from September. Analysts had expected the PMI to fall back to 55.0.

Fourteen of the 18 manufacturing industry sectors reported growth in October; the exceptions were apparel, primary metals, chemicals and miscellaneous manufacturing.

"Government spending continues to be slow in defense and military," a transportation equipment manufacturer told ISM. "The government shutdown and debt ceiling crisis did not affect business."

The October report “contributes to growing evidence that modest improvements in global financial stability and growth are benefiting U.S. factories,” said Cliff Waldman, senior economist for the Manufacturers Alliance for Productivity and Innovation (MAPI).

“The demand components of the index were notably positive, with the new orders component remaining above the strong 60% level and the backlog of orders, a measure of the pressure on the factory production schedule, increasing nicely from contraction territory in September to growth territory in October,” Waldman continued.

Calling the strength of sales the “big story” in this report, Chad Moutray, chief economist for the National Association of Manufacturers, said the third straight month of the new orders index exceeding 60.0 indicated “an extremely healthy pace of new orders.”

The export index rose 5 percentage points in October to 57%, its highest level since April 2012.

“Much of this was to be expected given the emergence of Europe from recession and a rebound in activity in Asia,” commented Michael Dolega, an economist with TD Economics. “The eurozone manufacturing PMI, while edging lower in October, remains in expansionary territory. Manufacturing indexes also look better across the Pacific, with China, Japan, and South Korea all showing improvement as of late.”

Though still in strong +60% territory, the production index did pull back by a couple points to 60.8. The employment index also slipped from 55.4 in September to 53.2, indicating continuing employer reluctance to add more workers.

MAPI’s Waldman noted that the ISM index in recent months has painted a more optimistic picture of manufacturing performance that the industrial production reports issued by the Federal Reserve.

“Federal Reserve data show that the third quarter rebound from the modest contraction of manufacturing output in the spring was a disappointing 1.3%,” said Waldman. “Fed data also show that the slowdown in the U.S. housing recovery is impacting overall manufacturing performance. Taken together, the ISM data and the industrial production data suggest positive but muted near-term performance for U.S. factories, as the beneficial impacts of an improved global growth picture are at least somewhat neutralized by uncertainties about the sustainability of the rebound in key parts of the world and the potentially harmful effects of historic policy uncertainty in Washington.”

TAGS: Supply Chain
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