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US Factory Gains Cool to Still-Solid Pace as Bottlenecks Ease

Oct. 1, 2018
"Despite the decline, the reported growth in 15 out of 18 manufacturing industries is a testament to the expanded economic activity in the manufacturing sector," said Anthony Sasso of TD Bank.

A measure of U.S. manufacturing cooled in September from a 14-year high as supply bottlenecks and price pressures eased, Institute for Supply Management data showed on Oct. 1.

The factory index dropped to 59.8 from 61.3 in the prior month.

The measure of new orders fell to 61.8 from 65.1 while the production index advanced to 63.9, the highest since January.  And the gauge of prices paid slipped to a 10-month low of 66.9 from 72.1; biggest one-month decline since June 2017.

The ISM report indicates manufacturing is coming off the boil while still expanding at a solid pace amid steady demand and lower taxes. The industry is poised to contribute to economic growth this quarter even as trade tensions with China escalate.

Declines in gauges of backlogs and supplier-delivery times signal factories are catching up with demand, helping to dissipate price pressures. In prior months, producers’ rush to buy materials ahead of U.S. tariffs and counter-levies by China triggered supply-chain disruptions and a surge in costs.

The employment index rose to 58.8, the highest since February, from 58.5. This bodes well for manufacturing payrolls, which are projected to rebound in September after a small drop in August.

"Albeit a slight decline, the economy's strength is holding, as we continue to see an increase in production, employment, new export orders and imports," states Anthony Sasso, head of equipment finance, TD Bank. "The reported growth in 15 out of 18 manufacturing industries is a testament to the expanded economic activity in the manufacturing sector. As we look ahead into 2019, we remain cautiously optimistic about continued economic growth while assessing the impact potential tariffs may have."

Other Highlights

- The gauge of supplier deliveries fell to a five-month low of 61.1 from a 64.5 reading that was near a 14-year high; shows lead times growing at slower pace as producers find it easier to meet demand

- The index of backlogs fell to 55.7 from 57.5.

- Inventories slid to 53.3 from 55.4.

-Export orders measure rebounded to 56, the first pickup in three months, from 55.2.

By Shobhana Chandra

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