Manufacturing growth slowed in October

U.S. manufacturing activity expanded for the ninth consecutive month while the overall economy grew for the 72nd month according to the most recent Institute for Supply Management Manufacturing Business Survey Report.

The report was issued today by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee. "Manufacturing growth slowed in October to its lowest level since March 2007. While the new orders Index continued to grow and the production Index fell below 50 for the first time since January 2007, the employment Index grew slightly, signaling continuing strength in manufacturing employment. It does appear that the impact of the slow down in the financial, housing and transportation segments has spilled over into manufacturing with the exception being continued strength in new export orders."

The nine industries reporting growth in October — listed in order — are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Paper Products; Plastics & Rubber Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Chemical Products.

Manufacturing grew at a slower rate in October as the Purchasing Managers’ Index (PMI) registered 50.9 percent, a decrease of 1.1 percentage points when compared to September's reading of 52 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. A PMI in excess of 41.9 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates that both the overall economy and the manufacturing sector are growing.

"The past relationship between the PMI and the overall economy indicates that the PMI average for January through October (52.8 percent) corresponds to a 3.4 percent increase in real gross domestic product (GDP) annually. In addition, if the PMI for October (50.9 percent) is annualized, it corresponds to a 2.8 percent increase in real GDP annually," said Ore.

The Institute for Supply Management’s (ISM) New Orders Index registered 52.5 percent in October. The index is 0.9 percentage point lower than the 53.4 percent reported in September. A New Orders Index above 49.1 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars). Eight industries reported increases during October: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Paper Products; Computer & Electronic Products; and Chemical Products.

ISM's Production Index registered 49.6 percent in October, which is 5 percentage points lower than the 54.6 percent reported in September. October reverses a trend of eight consecutive months of production growth for manufacturers. An index above 49.8 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. Of the industries reporting in October, seven registered growth: Apparel, Leather & Allied Products; Paper Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Chemical Products.

ISM's Employment Index registered 52 percent in October, which is an increase of 0.3 percentage point when compared to September's reading of 51.7 percent. An Employment Index above 49.2 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The six industries reporting growth in employment during October are: Petroleum & Coal Products; Apparel, Leather & Allied Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Paper Products; and Transportation Equipment.