ISM Manufacturing Index (PMI) Points to Continued Strength in October

ISM Manufacturing Index (PMI) Points to Continued Strength in October”

The ISM said its purchasing managers index fell to 58.7 in October from 60.8 in September, although a reading above 50 still indicates growth in the manufacturing sector. Notable falls were seen in inventories, supplier deliveries, prices, and order backlog.

The new orders index slipped 1.2 points to 53.4, but the biggest hit to the sector came from the three-point drop in supplier deliveries and the 4.5 point decline in inventories, both hit by transportation difficulties. The production index also fell 1.2%, landing at 61%.

The Employment Index slid to 59.8% in October from 60.3% the month before.

"Delivery delays lengthened at a slower rate and inventories were drawn down in the month, which is scored as a negative in the report but is really a positive since it creates the potential for future production increases to replenish inventory levels", John Ryding of RDQ Economics, said in research note.

Out of 18 manufacturing industries, 16 recorded growth in October, with paper products, nonmetallic mineral products, and machinery registering the strongest advances. Any index above 50 indicates growth in the sector. Hurricane Harvey hit energy-producing regions of Texas on August 25 and stalled over the state for days.

Data and Method of Presentation The Manufacturing and Non-Manufacturing PMI Report on businesses is based on survey responses indicating the changes in the level of business activities in the current month compared with the preceding month. Based on the press release following the publication of the PMI data, the London-based analytics company stated that the headline PMI numbers in the United States remain elevated, despite disruptions caused by hurricanes Harvey and Irma. Output growth remained unchanged month-on-month and is now at 14-month lows, with future expectations for growth falling to the lowest in four months. In addition, input prices accelerated at their fastest pace since December 2012, leading to a moderate rise in output prices, signifying inflationary pressures in the near-term. Analysts had expected the manufacturing PMI to dip to 59.5 in October. Of the 18 non manufacturing subsectors, 15 recorded growth in the following order: agriculture; utilities; finance & insurance; health care & social assistance; public administration; real estate rental & leasing; information & communication; transportation & warehousing; wholesale/retail trade; water supply, sewage & waste management; accommodation & food services; management of companies; arts, entertainment & recreation; electricity, gas, steam & air conditioning supply; and educational services. Eight industries reported growth while three of the eighteen reported a decrease in new export orders. The broader index is a seasonally adjusted composition of four diffusion indices comprised of business activity, new orders, employment and supplier deliveries, with equal weights assigned to them.

Export orders fell 0.5 point to 56.5, indicating growth for the twentieth consecutive month.

Supplier Delivery Time The supplier delivery time index for the manufacturing sector, at 55.5 points in October 2017, rose for the fifth consecutive month.

Pantheon Macroeconomics economist Ian Shepherdson said it was always going to be a struggle to match September's 13-year high, pointing out that this is a "very strong" report nonetheless. The Dow Jones industrial average, S&P 500 index and Nasdaq composite, which opened with solid gains to fresh record highs, pared much of their early gains following the ISM release.

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