The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index fell to 60.8 in October, off 0.3 points from 61.1 percent in September. October is the 17th consecutive reading above the neutral 50 threshold and the eighth month above 60 in the last 11 months (see first chart). The survey results suggest that the manufacturing sector continues to expand at a robust pace.
Among the key components of the survey, the New Orders Index posted a 6.9-point decline, coming in at 59.8 percent in October. The New Orders Index has been above 50 for 17 consecutive months but broke a string of 15 consecutive months above 60. The new export orders index, a separate measure from new orders, rose to 54.6 versus 53.4 in September. The new export orders index has been above 50 for 16 consecutive months.
The Production Index registered a 59.3 percent result in October, a decrease of 0.1 points in September. The index has been above 50 for 17 months.
The Employment Index rose in October, the second consecutive month above the neutral 50 level, to 52.0 percent. The index has been bouncing around between 49 and 53 for the last six months and may be reflecting the inability to hire rather than the lack of desire to hire.
The Bureau of Labor Statistics’ Employment Situation report for October is due out on Friday, November 5th. Consensus expectations are for a gain of 450,000 nonfarm payroll jobs including the addition of 27,000 jobs in manufacturing. The unemployment rate is expected to fall to 4.7 percent.
The Backlog-of-Orders Index decreased in October, coming in at 63.6 versus 64.8 in September. This measure has pulled back from the record-high 70.6 result in May but has been above 50 for 16 consecutive months and above 60 for nine consecutive months. The index suggests manufacturers’ backlogs continue to rise at a rapid pace.
Customer inventories in October are still considered too low, with the index coming in at 31.7, unchanged from September (index results below 50 indicate customers’ inventories are too low). The index has been below 50 for 61 consecutive months. Insufficient inventory may be a positive sign for future production.
The index for prices for input materials moved back up in October, coming in at 85.7 percent versus 81.2 percent in September. While the index is down from a recent peak of 92.1 in June, it is still very high. Rising input costs have been driven by shortages of materials and labor as well as production issues and logistical and transportation problems. Those issues are reflected in the supplier deliveries index, which rose again in October to 75.6 from 73.4, suggesting deliveries slowed again in October.
Overall, demand for the manufacturing sector remains robust but labor difficulties, materials shortages, and logistical problems continue to hamper the ability to meet that demand. Many of these problems will ease over time, but the prolonged period of normalization will sustain upward pressure on prices and remain a threat to overall economic growth.
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