The Institute for Supply Management (ISM) said that manufacturing activity expanded robustly in October, even as it pulled back from September’s reading, which was the fastest pace since May 2004. The ISM Manufacturing Purchasing Managers’ Index (PMI) decreased from 60.8 in September to 58.7 in October. The sample comments suggest that negative impacts from recent hurricanes explain at least part of October’s weaker reading. Nonetheless, the larger story remains one of strength, with business activity continuing to grow at healthy rates. For instance, indices for new orders (down from 64.6 to 63.4) and production (down from 62.2 to 61.0) exceeded 60—a threshold which would signify a vigorous expansion in demand and output in the sector—for the fifth consecutive month.
In addition, the labor market remained tight. Employment (down from 60.3 to 59.8) decelerated slightly in October but remained near the six-year peak set in September. To illustrate recent progress on the job front, the employment index has averaged 60.0 over the past three months—a notable pickup in hiring growth from one year ago, with that measure at 51.8 in October 2016. Improvements in the global economy have been helpful for manufacturers, with modest growth in exports (down from 57.0 to 56.5) helping to buoy overall demand. Exports have now expanded for 20 straight months.
Meanwhile, prices for raw materials (down from 71.5 to 68.5) continued to remain elevated, even as the input cost index pulled back from its highest level since May 2011 in the prior survey. While we have seen decelerating pricing pressures in general since the spring months, this more-recent pickup reflects a rebound in some commodity costs. In other news, inventories (down from 52.5 to 48.0) contracted in October for the first time since June, falling for only the third time year-to-date.
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