ISM Shows Manufacturing Activity Accelerated in October

Andrew Klips |

Factory activity in the United States accelerated at a faster pace than expected in October as shown in the Institute for Supply Management’s Manufacturing Index report.  The report follows a regional report, the Chicago Business Barometer from MNI Indicators, that on Thursday showed business activity in the Midwest soared in October, registering its biggest one-month move in more than 30 years.

The ISM Manufacturing report, which covers the entire United States, rose to 56.4 in October from 56.2 in September, topping economist predictions of a decrease to 55.0.  Readings above 50 indicate expansion in the factory sector, while readings below signals contraction.  October marked the fifth consecutive month of reading above 50 and the highest level since April 2011.  The rise in the headline index suggests that manufacturers mostly ignored the government shutdown in the first half of October.

The average for the index over the past 12 months is 52.8.

The new orders index increased by 0.1 percent from September to October to 60.6 percent, marking the fifth straight month of growth.  Ten industries reported growth, lead by textile mills.

The production index declined by 1.8 points to 60.8; although both closely watched indexes have still held over 60 for the past three months.  Textile mills once again paced the gainers.

While manufacturing seems to be rolling, hiring slowed during the month.  The employment index decreased from 55.4 in September to 53.2 in October.  The September reading was a 15-month high.  The employment situation report from the Labor Department, scheduled for November 8, is expected to show that hiring slowed in October.

The prices index dropped by 1 point to 56.5, indicating an increase in raw materials prices for the third straight month.  22 percent of respondents said that they are paying higher prices, while only 11 percent reported paying lower prices.

14 of the 18 manufacturing industries in the survey reported growth in October.  According to the survey, the overall economy is growing, representing the 53rd straight month of growth.  A PMI above 42.2, over a period of time, indicates expansion of the overall economy.

Respondents were generally upbeat in their comments, including a textile company saying that “New business is booming” and a computer electronics company saying, “Telecom market – wireless and VOIP – appear to be spiking.  We are very busy; busier than we have ever been.”

There were some comments that weren’t so rosy, such as a fabricated metal products company responding, “The government shutting down and threatening to go into a default position is causing all kinds of concerns in our markets.”

Interestingly, the MNI and ISM manufacturing reports for October were in stark contrast to a Friday report from Markit Economics, which showed that manufacturing is sluggish.  Markit’s PMI Manufacturing Index came in at 51.8 for October; it’s lowest level in one year.

Wall Street is bouncing around to kick-off November.  The main indexes were all in the green at one point, but at noon Eastern, the Dow Jones Industrial Average is hanging onto green by a thread, up 4 points, while the S&P 500 is down by 2 points and the Nasdaq is off by 12 points.  There have only been two months in 2013 (April and May) that have started the month with a red close for the Dow.

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