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Manufacturing Plunges to Lowest Level in 26 Years

ISM Index reveals depth of economic condition

Economic activity in the manufacturing sector failed to grow in October for the third consecutive month, and the overall economy concluded 83 consecutive months of growth, say the nation's supply executives in the latest Manufacturing ISM Report On Business.

"The October ISM index at 38.9% is another sharp decline, and takes the index to the lowest level since 1982," said Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI. "Manufacturing activity has been falling (in terms of the Federal Reserves industrial production) since October 2007, but in the last two months business activity fell off a cliff. Hurricane Ike and the Boeing strike contributed to the sharp downturn, but the breadth of production losses across industries shows that there is a more fundamental explanation; the U.S. economy is deleveraging.

"The financial sector underpriced or did not understand the risks being taken with their new financial instruments and consumers over-indulged debt in a desperate attempt to improve their standard-of-living amid high price/asset inflation but low wage inflation," he added. "A retrenchment in housing, motor vehicles, and discretionary consumer goods and services is the result of the consumer sector being squeezed. Unfortunately, falling consumer demand creates unemployment and self reinforcing downturns across the industrial landscape."

ISM's New Orders Index registered 32.2% in October, 6.6 percentage points lower than the 38.8% registered in September. This is the lowest reading for this index since June 1980 when the index was at 24.2%.

ISM's Production Index decreased to 34.1% in October, a decrease of 6.7 percentage points from the 40.8% reported in September.

ISM's Employment Index registered 34.6% in October, which is a decrease of 7.2 percentage points when compared to the 41.8% reported in September.

Manufacturers' inventories contracted in October as the Inventories Index registered 44.3%, which is 0.9 percentage point higher than the 43.4% reported in September.

ISM's New Export Orders Index registered 41% in October, a decrease of 11 percentage points when compared to September's index of 52%.

Imports of materials by manufacturers contracted during October as the Imports Index registered 41%, 3 percentage points lower than the 44% reported in September.

TAGS: Procurement
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