ISM: New Orders Lift Purchasing Managers’ Index Higher Again

By November 1, 2012Economy

The Institute for Supply Management’s purchasing managers’ index (PMI) edged slightly higher, up from 51.5 in September to 51.7 in October. This follows three prior months (June to August) of contracting activity, with new sales activity pulling production and employment lower.

The last two months have reversed that trend, with the pace of new orders picking up. The index for new orders has risen from 52.3 to 54.2. Of course, those are mostly domestic orders, with international sales continuing to be weak. The exports index dropped from 48.5 to 48.0.

With improvements in sales, manufacturing activity was higher in October. The production index shifted from contraction last month (49.5) to modest gains this month (52.4). With that said, this has not yet translated into more hiring. The pace of employment gains eased for the month, down from 54.7 to 52.1. In other highlights, inventory levels were unchanged on net, and pricing pressures appear to have stabilized at least for now.

Despite the progress seen in the headline PMI number, the sample comments provided in the report tend to support the view that the manufacturing sector remains weak, particularly with regard to exports. A chemical products manufacturer said, “Europe is still very much a concern. Global recovery is still fragile.”

Indeed, other comments tended to echo this softness in demand. A couple of the respondents, though, did suggest that their company’s outlook was better, with a transportation equipment manufacturer stating, “Business conditions stable to stable improving.”

Sales appear to have stabilized on net for the manufactures who respond to this survey, and yet, it is also clear that the global and U.S. economic landscape remains soft. International sales, including both exports and imports, continue to fall, presenting a challenge for manufacturers’ ability to grow their businesses. And, with the fiscal cliff looming, consumers and manufacturing leaders are left to wonder how policymakers will deal with the country’s lack of discipline and how this will affect their finances going into 2013.

While it is good news that manufacturing activity has seen modest growth now for two consecutive months, one should not lose sight of the fact that the overall manufacturing sector remains weak. Even with an increased pace of new orders (which should bode well for future activity), there remain significant headwinds (e.g., slowing global growth, the fiscal cliff) which could derail this progress.

Chad Moutray is chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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