This Morning’s Key Economic Data - ISM Report for October
November 2, 2009 – This morning’s key economic data includes the ISM report for October which provided a positive barometer of activity in the manufacturing sector. One of the most positive results coming from the data was that “ISM's Employment Index registered 53.1 percent in October, which is 6.9 percentage points higher than the 46.2 percent reported in September. This is the first month of growth in manufacturing employment following 14 consecutive months of decline.”
Excerpt From Report
New Orders, Production and Employment Growing; Inventories Contracting; Supplier Deliveries Slower
(Tempe, Arizona) — Economic activity in the manufacturing sector expanded in October for the third consecutive month, and the overall economy grew for the sixth consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business.The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The manufacturing sector grew for the third consecutive month in October, and the rate of growth is the highest since April 2006 when the PMI registered 56 percent.
The jump in the index was driven by production and employment, with both registering significant gains. Production appears to be benefiting from the continuing strength in new orders, while the improvement in employment is due to some callbacks and opportunities for temporary workers. Overall, it appears that inventories are balanced and that manufacturing is in a sustainable recovery mode.
"PERFORMANCE BY INDUSTRY
In October, 13 of the 18 manufacturing industries reported growth. The industries — listed in order — are: Petroleum & Coal Products; Apparel, Leather & Allied Products; Furniture & Related Products; Chemical Products; Computer & Electronic Products; Transportation Equipment; Plastics & Rubber Products; Machinery; Food, Beverage & Tobacco Products; Printing & Related Support Activities; Fabricated Metal Products; Electrical Equipment, Appliances & Components; and Paper Products. The three industries reporting contraction in October are: Nonmetallic Mineral Products; Primary Metals; and Wood Products.
WHAT RESPONDENTS ARE SAYING ...
"We are beginning to be affected greatly by lead-time increases on semiconductor components." (Computer & Electronic Products)
"Still a very difficult environment — commodity increases threaten recovery and don't seem to correlate with any supply/demand fundamentals." (Food, Beverage & Tobacco Products)
"Automotive demand still remains strong even after 'cash for clunkers.'" (Fabricated Metal Products) [indicated for the second month]"After several rather busy months, we are seeing the order intake for early next year soften." (Transportation Equipment)
"The improvement seen earlier is not holding." (Primary Metals)
PMI
The recovery in manufacturing strengthened in October as the PMI registered 55.7 percent, which is 3.1 percentage points higher than the 52.6 percent reported in September, and the highest reading for the index since April 2006 (56 percent). A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
A PMI in excess of 41.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the sixth consecutive month in the overall economy, as well as expansion in the manufacturing sector for the third consecutive month. Ore stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through October (44.6 percent) corresponds to a 1.1 percent increase in real gross domestic product (GDP). However, if the PMI for October (55.7 percent) is annualized, it corresponds to a 4.5 percent increase in real GDP annually."
New Orders
ISM's New Orders Index registered 58.5 percent in October, 2.3 percentage points lower than the 60.8 percent registered in September. This is the fourth consecutive month of growth in the New Orders Index. A New Orders Index above 48.8 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).
The nine industries reporting growth in new orders in October — listed in order — are: Furniture & Related Products; Apparel, Leather & Allied Products; Computer & Electronic Products; Chemical Products; Food, Beverage & Tobacco Products; Paper Products; Electrical Equipment, Appliances & Components; Machinery; and Fabricated Metal Products. The four industries reporting decreases in new orders in October are: Nonmetallic Mineral Products; Wood Products; Plastics & Rubber Products; and Primary Metals.
Production
ISM's Production Index registered 63.3 percent in October, which is an increase of 7.6 percentage points from the September reading of 55.7 percent. An index above 50.4 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. This is the fifth consecutive month the Production Index has registered above 50 percent.
The 11 industries reporting growth in production during the month of October — listed in order — are: Plastics & Rubber Products; Furniture & Related Products; Apparel, Leather & Allied Products; Chemical Products; Computer & Electronic Products; Paper Products; Machinery; Printing & Related Support Activities; Fabricated Metal Products; Transportation Equipment; and Food, Beverage & Tobacco Products. The two industries reporting decreases in production in October are: Nonmetallic Mineral Products and Primary Metals.
Employment
ISM's Employment Index registered 53.1 percent in October, which is 6.9 percentage points higher than the 46.2 percent reported in September. This is the first month of growth in manufacturing employment following 14 consecutive months of decline. An Employment Index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
Eight of the 18 manufacturing industries reported growth in employment in October in the following order: Petroleum & Coal Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Transportation Equipment; Food, Beverage & Tobacco Products; Machinery; and Fabricated Metal Products. The four industries that reported decreases in employment during October are: Primary Metals; Paper Products; Chemical Products; and Plastics & Rubber Products.
Supplier Deliveries
The delivery performance of suppliers to manufacturing organizations was slower in October as the Supplier Deliveries Index registered 56.9 percent, which is 1.1 percentage points lower than the 58 percent registered in September. This is the fifth consecutive month the Supplier Deliveries Index has been above 50 percent, following eight months of faster delivery performance. A reading above 50 percent indicates slower deliveries.
The seven industries reporting slower supplier deliveries in October — listed in order — are: Petroleum & Coal Products; Computer & Electronic Products; Transportation Equipment; Paper Products; Fabricated Metal Products; Machinery; and Chemical Products. The two industries reporting faster deliveries in October are: Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products.
Inventories
Manufacturers' inventories contracted at a slower rate in October as the Inventories Index registered 46.9 percent. The index is 4.4 percentage points higher than the September reading of 42.5 percent. An Inventories Index greater than 42.6 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).Six of the 18 manufacturing industries reported higher inventories in October in the following order: Petroleum & Coal Products; Apparel, Leather & Allied Products; Plastics & Rubber Products; Chemical Products; Food, Beverage & Tobacco Products; and Transportation Equipment.
The six industries that reported decreases in inventories in October — listed in order — are: Paper Products; Computer & Electronic Products; Fabricated Metal Products; Furniture & Related Products; Nonmetallic Mineral Products; and Electrical Equipment, Appliances & Components.
Customers' Inventories*
The ISM Customers' Inventories Index registered 38.5 percent in October, slightly lower than in September when the index registered 39 percent. The index indicates that respondents believe their customers' inventories are too low at this time.
This is the seventh consecutive month the Customers' Inventories Index has been below 50 percent, following eight months above 50 percent.Plastics & Rubber Products is the only industry reporting higher customers' inventories during October. The 11 industries that reported lower customers' inventories during October — listed in order — are: Wood Products; Nonmetallic Mineral Products; Printing & Related Support Activities; Computer & Electronic Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Primary Metals; Paper Products; Machinery; and Chemical Products.
Prices
*The ISM Prices Index registered 65 percent in October, 1.5 percentage points higher than the 63.5 percent reported in September. This is the fourth consecutive month that the Prices Index has registered above 50 percent. While 37 percent of respondents reported paying higher prices and 7 percent reported paying lower prices, 56 percent of supply executives reported paying the same prices as in September. A Prices Index above 47.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.
The 12 industries reporting paying increased prices during the month of October — listed in order — are: Plastics & Rubber Products; Miscellaneous Manufacturing; Paper Products; Printing & Related Support Activities; Chemical Products; Fabricated Metal Products; Machinery; Primary Metals; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Transportation Equipment; and Food, Beverage & Tobacco Products. The only industry that reported paying lower prices during October is Nonmetallic Mineral Products.
Backlog of Orders
*ISM's Backlog of Orders Index registered 53.5 percent in October, the same as reported in September. Of the 81 percent of respondents who reported their backlog of orders, 27 percent reported greater backlogs, 20 percent reported smaller backlogs, and 53 percent reported no change from September.
The nine industries reporting increased order backlogs in October — listed in order — are: Furniture & Related Products; Apparel, Leather & Allied Products; Wood Products; Printing & Related Support Activities; Paper Products; Chemical Products; Machinery; Computer & Electronic Products; and Fabricated Metal Products. The six industries that reported decreases in order backlogs during October — listed in order — are: Petroleum & Coal Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Primary Metals; Plastics & Rubber Products; and Food, Beverage & Tobacco Products.
New Export Orders
*ISM's New Export Orders Index registered 55.5 percent in October, 0.5 percentage point higher than the 55 percent reported in September. This is the fourth consecutive month of growth in the New Export Orders Index, following nine consecutive months of contraction.
The seven industries reporting growth in new export orders in October — listed in order — are: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Chemical Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Transportation Equipment; and Machinery. The four industries that reported decreases in new export orders in October are: Nonmetallic Mineral Products; Primary Metals; Plastics & Rubber Products; and Fabricated Metal Products.
Imports*
Imports of materials by manufacturers expanded in October as the Imports Index registered 51 percent, 1 percentage point lower than the 52 percent reported in September. Imports have contracted in 18 of the last 21 months.
The five industries reporting growth in imports during the month of October are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Paper Products; Fabricated Metal Products; and Machinery. The five industries that reported decreases in imports in October are: Primary Metals; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Chemical Products.
