Economic activity in the manufacturing sector contracted in October for the eighth consecutive month, following a two-month expansion preceded by 26 straight months of contraction, say the nation’s supply executives in the latest ISM Manufacturing PMI Report.
The report was issued by Susan Spence, chair of the Institute for Supply Management (ISM) manufacturing business survey committee.
“The Manufacturing PMI registered 48.7% in October, a 0.4-percentage point decrease compared to the reading of 49.1% recorded in September. The overall economy continued in expansion for the 66th month after one month of contraction in April 2020. (A Manufacturing PMI above 42.3%, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index contracted for the second month in October following one month of growth; the figure of 49.4% is 0.5 percentage point higher than the 48.9% recorded in September. The October reading of the Production Index (48.2%) is 2.8 percentage points lower than September’s figure of 51%. The Prices Index remained in expansion (or ‘increasing’ territory), registering 58%, down 3.9 percentage points compared to the reading of 61.9% reported in September. The Backlog of Orders Index registered 47.9%, up 1.7 percentage points compared to the 46.2% recorded in September. The Employment Index registered 46%, up 0.7 percentage point from September’s figure of 45.3%,” Spence said. “The Supplier Deliveries Index indicated slower delivery performance for the third consecutive month after one month in ‘faster’ territory, which was preceded by seven consecutive months in ‘slower’ territory. The reading of 54.2% is up 1.6 percentage points from the 52.6% recorded in September. (Supplier Deliveries is the only ISM PMI Reports index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 45.8%, down 1.9 percentage points compared to September’s reading of 47.7%.”
Spence continued, “The New Export Orders Index reading of 44.5% is 1.5 percentage points higher than the reading of 43% registered in September. The Imports Index registered 45.4%, 0.7 percentage point higher than September’s reading of 44.7%. In October, U.S. manufacturing activity contracted at a faster rate, with contractions in production and inventories leading to the 0.4-percentage point decrease of the Manufacturing PMI. A chain reaction of one-month index improvements started with New Orders in August and flowed to Production in September. In October, it manifested in a 1.7-percentage point increase in the Backlog of Orders Index. These short gains have not appeared to translate into sustained growth for the sector, a reflection of continuing economic uncertainty. All of the four demand indicators (New Orders, New Export Orders, Backlog of Orders, and Customers’ Inventories indexes) improved, although they are still in contraction territory. The Customers’ Inventories Index contracted at a slower rate. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production.”
Spence added, “Regarding output, production deteriorated and employment contracted at a slower pace, as 67% of panelists indicated that managing head count is still the norm at their companies, as opposed to hiring. Finally, inputs (defined as supplier deliveries, inventories, prices and imports), are mixed, with the Supplier Deliveries Index indicating slower deliveries, the Inventories Index contracting at a faster rate, and the Prices Index continuing to indicate pricing increases, but at a slower rate. The Imports Index contracted at a slower pace.
Spence concluded, “Looking at the manufacturing economy, 58% of the sector’s gross domestic product (GDP) contracted in October, down from 67% in September, however; the% of GDP in strong contraction (registering a composite PMI of 45% or lower), is at 41%, up 13% from September. The share of sector GDP with a PMI at or below 45% is a good metric to gauge overall manufacturing weakness. Of the six largest manufacturing industries, only two (food, beverage & tobacco products; and transportation equipment) expanded in October.”
The six manufacturing industries reporting growth in October — listed in order — are:
- Primary metals
- Food, beverage & tobacco products
- Transportation equipment
- Plastics & rubber products
- Fabricated metal products
- Nonmetallic mineral products
The 12 industries reporting contraction in October — in the following order — are:
- Textile mills
- Apparel, leather & allied products
- Furniture & related products
- Paper products
- Printing & related support activities
- Wood products
- Petroleum & coal products
- Electrical equipment, appliances & components
- Chemical products
- Machinery
- Miscellaneous manufacturing
- Computer & electronic products
