Tuesday, November 2, 2010

ISM Manufacturing Increases

From the ISM

The manufacturing sector grew during October, with both new orders and production making significant gains. Since hitting a peak in April, the trend for manufacturing has been toward slower growth. However, this month's report signals a continuation of the recovery that began 15 months ago, and its strength raises expectations for growth in the balance of the quarter. Survey respondents note the recovery in autos, computers and exports as key drivers of this growth. Concerns about inventory growth are lessened by the improvement in new orders during October. With 14 of 18 industries reporting growth in October, manufacturing continues to outperform the other sectors of the economy."

As I noted when I looked at the Beige Book's manufacturing numbers, the auto industry is making a comeback.

Let's take a look at some of the other parts of the report.

Of the 18 manufacturing industries, 14 are reporting growth in October, in the following order: Apparel, Leather & Allied Products; Primary Metals; Petroleum & Coal Products; Machinery; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Fabricated Metal Products; Paper Products; Printing & Related Support Activities; Transportation Equipment; Computer & Electronic Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; and Chemical Products. The two industries reporting contraction in October are: Nonmetallic Mineral Products; and Furniture & Related Products.

14 of 18 industries are showing growth. That's a good number and indicates more strength than thought.

  • "The dollar is weakening again, which is resulting in higher costs for our materials we purchase overseas. It is hurting our profit margins." (Transportation Equipment)
  • "Business slowing down but still double digit over last year." (Chemical Products)
  • "Currency continues to wreak havoc with commodity pricing." (Food, Beverage & Tobacco Products)
  • "Customers remain cautious, placing orders at the last minute, making supply planning a challenge." (Machinery)
  • "Our customer base — auto manufacturers — is expanding capacity and making major capital investments." (Fabricated Metal Products)
First, several comments note the lower dollar is having a negative impact on commodities -- which is pretty obvious but important to keep in mind. Again, there is a mention of the auto sector making a contribution. Finally, it appears there still isn't alot of confidence in the overall environment, as people are making orders at the last minute.

ISM's New Orders Index registered 58.9 percent in October, which is an increase of 7.8 percentage points when compared to the 51.1 percent reported in September. This is the 16th consecutive month of growth in the New Orders Index and the largest month-over-month improvement since January 2009. A New Orders Index above 50.2 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 62.7 percent in October, which is an increase of 6.2 percentage points from the September reading of 56.5 percent. This is the largest month-over-month improvement since January 2010.
An index above 51 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. This is the 17th consecutive month the Production Index has registered above 50 percent.

Both of these numbers are good news for the economy. First, new orders increased sharply, indicating the lull over the summer may be over. In addition, production increased, which is also obviously a good sign.

Overall, this is a very encouraging report.