Unexpected US manufacturing activity rise in October

PMI , USA Nov 06, 2014 No Comments

ISMThe ISM’s manufacturing purchasing managers index increased to 59.0 last month from 56.6 in September. The top-line index is back to its August reading, which was the highest since March 2011. In October, 16 of 18 reporting industries reported growth.

Other manufacturing PMIs around the world slowed in October, a few falling into or staying at readings that indicate contraction. China‘s two factory readings were barely above 50 last month. The total eurozone PMI was slightly expansionary, but the readings for France and Italy showed contracting activity. The UK PMI was one of the few indexes to accelerate in October.

Activity in the US manufacturing sector expanded at a quicker than expected pace in October 2014 as evidenced by the ISM manufacturing index jumping to 59.0 from 56.6 in September. The improvement in the gauge of manufacturing activity, which defied market expectations for a slowing to 56.2 in the month, matched the 59.0 reading recorded in August that had represented the highest index level since March 2011.

“The past relationship between the PMI and the overall economy indicates that the average PMI for January through October (55.6 percent) corresponds to a 4.1 percent increase in real gross domestic product (GDP) on an annualized basis,” says Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Business Survey Committee. “In addition, if the PMI for October (59 percent) is annualized, it corresponds to a 5.2 percent increase in real GDP annually.”

ISM’s New Orders Index increased 5.8 percentage points from September to reach 65.8 percent showing 17 months of consecutive growth. New Orders is very strong and was actually at a 10 year high in August,” Holcomb added. “We’re not quite back to that, but still at a very strong number. We have 14 of our 18 industries reporting growth in new orders, and three reporting at even from last month. This is very broad-based growth, which just indicates that customers are lining up for these products.”

The Production Index increased 0.2 percent to 64.8 percent, the Employment Index increased 0.9 percent to 55.5 percent, and the inventories of raw materials increased 1 percent to 52.5 percent.

Although still growing, the Supplier Deliveries Index has been slowing. The Customer’s Inventories Index was too low and the rate of change was slowing. The Backlog of Orders Index turned around from contracting to growing, according to the release.

“Comments from the panel generally cite positive business conditions, with growth in demand and production volumes,” the ISM report said.

Economists warn the global slowdown will eventually catch up to U.S. producers.

The ISM survey includes one sign of that. Economists have begun to compare the ISM indexes on new orders and on exports orders to gauge the difference between U.S. and global growth. The bigger the gap, the better the U.S. economy is doing versus the world. In October, the gap was the largest since the ISM started tracking exports in 1988.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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