"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," said Norbert Ore, the chair of the Institute for Supply Management™ Manufacturing Business Survey Committee.
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)BREAKING DOWN THE INDEX
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.
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).
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.
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
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.
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).
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.
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.
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.
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.
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.
Average commitment lead time for Capital Expenditures increased 4 days to 103 days. Average lead time for Production Materials decreased 5 days to 41 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies decreased 2 days to 21 days.