The Institute for Supply Management (ISM) Purchasing Managers Index (PMI) indicated that the pace of growth slowed somewhat, with the index falling from 51.6 in September to 50.8 in October. Valuew over 50 indicate an expanding manufacturing sector. On the one hand, this is the 27th consecutive month that the PMI has been over 50, and yet, it is clear that the expansion is just barely positive.
Among the negatives in this month’s report, production fell from 51.2 to 50.1. Therefore, overall production activity did not change from the previous survey. The same was true for export growth, which declined from 53.5 to 50.0. Of course, manufacturers are doing a good job of preserving their inventory-to-sales ratio, and so, it should not be a surprise (in light of weakers sales and production) that inventories contracted, with its index standing at 46.7.
There were some definite good signs in the numbers, as well. The index for new orders rose from 49.6 to 52.4, suggesting that there has been a pickup in orders for the sector in the past month. Likewise, the measure for employment, while marginally lower, continued to indicate net hiring among manufacturers.
Many of the comments tended to mirror these numbers. A plastics and rubber products respondent said, “Business is slowing – not crashing – but uncertainty and caution is the order of the day.” Likewise, a machinery manufacturer noted weaker international demand. Of course, not all of those taking the survey had negative things to say. A few of them – with the examples being respondents in the fabricated metals and transportation sectors – cited strong demand for their products, and chemical products manfuacturing concern noting lower prices for raw materials.
Indeed, the measure for the price of raw materials did indicate some deflation taking place, with the index falling from 56.0 to 41.0. This is obviously a positive, but it is important to note that manufacturers have complained for a long time about elevated prices, with many of them also predicting that trend to continue moving ahead. Nonetheless, an easing in raw material prices is welcome.
Overall, today’s PMI numbers show how the tenuousness of the current economic environment. Weaknesses in the economy – particularly in Europe, but also through increased anxieties here domestically – continue to hamstring growth efforts. The positive news is that there was an expansion of new orders; this has been mirrored in other recent surveys. And yet, growth in the sector remains anemic.
It is clear that policymakers need to adopt pro-growth policies that will enable manufacturers and the overall economy to expand. With the Republican Presidential Forum on Manufacturing taking place today, we will get a glimpse of how several of the Presidential candidates would seek to do just that.
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