Friday, November 4, 2011

Manufacturing and Services Still Expanding

From the ISM
"The PMI registered 50.8 percent, a decrease of 0.8 percentage point from September's reading of 51.6 percent, indicating expansion in the manufacturing sector for the 27th consecutive month. The New Orders Index increased 2.8 percentage points from September to 52.4 percent, indicating a return to growth after three months of contraction. The Prices Index, at 41 percent, dropped 15 percentage points, and is below the 50 percent mark for the first time since May 2009 when it registered 43.5 percent. Inventories decreased to 46.7 percent, which is 5.3 percentage points below the September reading of 52 percent. Comments from respondents are mixed, indicating positive relief from raw materials pricing and continuing strength in a few industries, but there is also more concern and caution about growth in this uncertain economy."
Here's a graph of the composite index

While the index took a large dive earlier this year, it has remained positive, although just slightly so for the entire year.
  • "Starting to see some deflation on raw materials." (Chemical Products)
  • "Overall industry volumes remain flat vs. previous month. Uncertainty in supply chain is increasing due to lower volumes vs. historical." (Electrical Equipment, Appliances & Components)
  • "International: contraction in demand for our products is driving mitigation of excess material on order. Contract manufacturers are adjusting their resources accordingly." (Machinery)
  • "Business is very strong, both domestically and internationally." (Fabricated Metal Products)
  • "With metal prices declining, we are seeing some short-term forecast strength. If metal pricing increases again, this strength is expected to disappear again." (Primary Metals)
  • "Auto industry still strong." (Transportation Equipment)
  • "Business is slowing — not crashing — but uncertainty and caution is the order of the day." (Plastics & Rubber Products)
  • "Retail branded business is slower than expected due to consumers continuing to move to private label- and store-brand products for price advantage. Raw material supplies are in good shape, but prices are staying stubbornly higher than expected." (Food, Beverage & Tobacco Products)
The anecdotal information tells the following stories

1.) Input prices are decreasing
2.) Uncertainty is increasing
3.) Demand is dropping, but not crashing.

There were a few other good points in the report

1.) New orders were above 50 -- which is positive
2.) Production was 50.1 - just slightly expansionary
3.) Employment was at 53.5 -- also positive.

Let's turn to the services number

"The NMI registered 52.9 percent in October, 0.1 percentage point lower than the 53 percent registered in September, and indicating continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased 3.3 percentage points to 53.8 percent, reflecting growth for the 27th consecutive month. The New Orders Index decreased by 4.1 percentage points to 52.4 percent. The Employment Index increased 4.6 percentage points to 53.3 percent, indicating growth in employment after one month of contraction. The Prices Index decreased 4.8 percentage points to 57.1 percent, indicating prices increased at a slower rate in October when compared to September. According to the NMI, eight non-manufacturing industries reported growth in October. Even though there is month-over-month growth in the Employment Index, respondents are still expressing concern over available labor resources and job growth. The continued strong push for inventory reduction by supply management professionals has resulted in contraction in the Inventories Index for the first time in eight months. Respondents' comments are mixed and reflect concern about future business conditions."

Here's the chart of the composite index:

The index has been in the same place for the last seven months. 

  • "Business is fairly flat, with a slight increase noted for the month." (Health Care & Social Assistance)
  • "Sales are increasing slightly, but are still lower than they have been historically." (Public Administration)
  • "Some slowdown in the last month." (Finance & Insurance)
  • "Business is steady, with a lot of price competition at the selling end of our business." (Agriculture, Forestry, Fishing & Hunting)
  • "The poor economy is creating a drag on expected revenue through the end of this year." (Information)
  • "Overall, we are still growing, but we are beginning to see some cautiousness reflected in our customers." (Wholesale Trade)
The overall tenor of the above comments is one of continued activity with a slightly negative bias.  There is no indication that businesses are growing strongly, but there is also no indication that businesses are contracting either.  There is caution, but but no collapse.