A report released by the Institute for Supply Management on Thursday showed a bigger than expected slowdown in the pace of growth in U.S. manufacturing activity in the month of October.
Economic activity in the U.S. manufacturing sector expanded in October, and the overall economy grew for the 114th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.
The October PMI registered 57.7 percent (vs 59.0 expected), a decrease of 2.1 percentage points from the September reading of 59.8 percent. The New Orders Index registered 57.4 percent, a decrease of 4.4 percentage points from the September reading of 61.8 percent.
The Production Index registered 59.9 percent, a 4 -percentage point decrease compared to the September reading of 63.9 percent. The Employment Index registered 56.8 percent, a decrease of 2 percentage points from the September reading of 58.8 percent.
The Supplier Deliveries Index registered 63.8 percent, a 2.7-percentage point increase from the September reading of 61.1 percent. The Inventories Index registered 50.7 percent, a decrease of 2.6 percentage points from the September reading of 53.3 percent. The Prices Index registered 71.6 percent, a 4.7-percentage point increase from the September reading of 66.9 percent, indicating higher raw materials prices for the 32nd consecutive month.
“Comments from the panel reflect continued expanding business strength. Demand remains moderately strong, with the New Orders Index easing to below 60 percent for the first time since April 2017, the Customers’ Inventories Index remaining low but improving, and the Backlog of Orders Index remaining steady. Consumption softened, with production and employment continuing to expand, but at lower levels compared to September. Inputs — expressed as supplier deliveries (increased), inventories and imports — retained September’s levels. Continued supply chain delivery difficulties led to an increased consumption of inventory, and import expansion was stable. Lead-time extensions continue, while steel and aluminum prices are stabilizing. Supplier labor issues and transportation difficulties continue to disrupt production, but at more manageable levels.
“The expansion of new export orders softened, but five of six major industries contributed, up from two in September. Prices pressure continues, with the index returning above 70 percent. Overall, the manufacturing community continues to expand, but at the lowest level since April 2018,” says Fiore.
Of the 18 manufacturing industries, 13 reported growth in October, in the following order: Textile Mills; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Furniture & Related Products; Miscellaneous Manufacturing; Machinery; Transportation Equipment; Printing & Related Support Activities; Chemical Products; and Paper Products. The four industries reporting contraction in October are: Wood Products; Primary Metals; Nonmetallic Mineral Products; and Fabricated Metal Products.
Why Markets Care About ISM Manufacturing PMI
ISM Manufacturing PMI (also called Manufacturing ISM Report On Business) measures the level of a diffusion index based on surveyed purchasing managers in the manufacturing industry
It is derived from a survey of about 400 purchasing managers which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories;
It is released monthly, on the first business day after the month ends by the Institute for Supply Management (ISM) – before most of the official data on industrial output, manufacturing and Gross Domestic Product (GDP) become available.
The PMI covers five major survey sectors/areas: new orders, inventory deals, supplier deliveries & employment, and production. In doing so, it asks the respondents about changes in their discernment of key business variables from the month before. After getting the data, a composite index is constructed.
So, basically, it is a survey-based measure that asks questions about any change in business conditions, whether it is improving or not.
The Purchasing Managers’ Index (PMI) is a number from 0 to 100. Above 50 indicates expansion, below 50 indicates contraction, and at 50 indicates no change.
PMI = (Pi * 1) + (Pn * 0.5) + (Pd * 0)
Pi = percent of answers reporting an improvement
Pn = percent of answers reporting no change
Pd = percent of answers reporting a deterioration
The usual effect s that ‘Actual’ greater than ‘Forecast’ is good for the dollar and vice versa.
ISM Manufacturing PMI is a leading indicator of economic health – businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company’s view of the economy. PMI is both survey-based and an investor sentiment measure of the economy’s manufacturing sector. Digital participants and investors who invested in some manufacturer company must keep up with the market trends by following purchasing managers’ index (PMI).
Other Economy News : U.S. Construction Spending Flat In September
Construction spending in the U.S. came in virtually unchanged in the month of September, according to a report released by the Commerce Department on Thursday.
The Commerce Department said construction spending in September was estimated at an annual rate of $1.33 trillion, nearly the same as the revised August estimate. Economists had expected spending to inch up by 0.1 percent.
Reflecting an upward revision, the report showed construction spending climbed by 0.8 percent in August compared to the previously reported 0.1 percent uptick.
Construction spending was nearly unchanged in September, as an increase in spending on private construction was offset by a drop in spending on public construction.
The report said spending on private construction rose by 0.3 percent to a rate of $1.02 trillion, as spending on residential construction increased by 0.6 percent and spending on non-residential construction crept up by 0.1 percent.
On the other hand, spending on public construction spending fell by 0.9 percent to a rate of $309.1 billion, partly reflecting a 1.1 percent slump in spending on highway construction.
the Commerce Department said total construction spending in September was up by 7.2 percent compared to the same month a year ago.