The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) continued to expand modestly in October, sustaining the rebound seen in September. The composite index edged up from 51.5 in September to 51.9 in October, growing for the second straight month. Overall, this is encouraging for a sector that has seen subpar growth over much of the past two years on global headwinds and economic anxieties. On the positive side, production (up from 52.8 to 54.6) and exports (up from 52.0 to 52.5) both accelerated in October, and employment (up from 49.7 to 52.9) expanded for only the second time year-to-date. Manufacturers have been rather cautious so far in 2016, with hiring pulling back. Hopefully, better hiring data will follow stronger demand and output figures moving forward.
Along those lines, new orders (down from 55.1 to 52.1) slowed in October, but the trend line remained reassuring. Sales have expanded in 9 of the ten months so far this year, and many of the sample comments tended to echo some optimism regarding demand. For instance, respondents noted “steady” business, a “strong economy” and “favorable outlook” as examples of more-upbeat assessments in this report. Of course, there were also reminders that challenges remain, including for the primary metals manufacturer that said production was down considerably for their business.
Meanwhile, inventories (down from 49.5 to 47.5) contracted for the 16th consecutive month. The silver lining is that this could provide a stimulative effect for growth in the coming months, as manufacturers will need to increase production to meet additional demand, with stockpiles quite low.