October PMI Indicates Manufacturing Growth

Although the October Purchasing Managers’ Index (PMI) dropped 2.1 percentage points from the previous month, the Institute for Supply Management (ISM) national rating of 58.7% for October indicates growth in the manufacturing economy. Regional manufacturing was on the rise in October, too, as regional manufacturing reports from the MNI Chicago Business Barometer, Dallas Fed, and Kansas City Fed all registered increases over September numbers. With regional manufacturing at multi-year highs and continued growth in the nation overall, what went into the ratings — and which areas within the industry are growing?

Let’s do the numbers

According to the ISM, any “reading above 50 percent indicates that the manufacturing economy is generally expanding,” meaning the industry is continuing the growth insiders saw over the last few months. The only other increase in October was a 1.5% increase in Customers’ Inventories, a trend that has been growing over the past four months, although its index is below 50% — which “indicates that it is generally contracting.” In addition, Imports stayed flat from September to October but still showed growth at an index of 54%. Decreases, however, were mild and include:

  • 0.5% in Employment and New Export Orders
  • 1.2% in both New Orders and Production
  • 3% in Supplier Deliveries, Prices, and Backlog of Orders
  • 4.5% in Inventories

Of those that remained the same and decreased from month to month nationally, all showed signs of growth with indexes above 50%. And, although that growth is slow, it points to strength as the overall economy has grown for the 101st consecutive month and the manufacturing sector has grown for the 14th month in a row.

A truck travelling on a bridge in the sunset

Why the change?

Hurricanes having caused raw materials shortages has, in turn, increased the prices of and lead times on manufacturers receiving those materials, according to the ISM report. But those same hurricanes and the recovery efforts associated with them are also making for strong incoming orders. In fact, of the selected respondents from various sectors included in the report, the majority spoke of business increasing in the industry as it shows signs of growth.

That growth was evident regionally in the U.S. as the MNI Chicago Business Barometer and the Kansas City Fed’s measurements were their strongest since March 2011 and “the New York Fed’s Empire State factory index climbed to the highest since September 2014,” according to the Bloomberg report. Manufacturing in Milwaukee increased to its highest in nearly three years, and Texas manufacturing was its highest in over 11 years. The industry growth points to a strong outlook for at least the next few months in manufacturing.

Continued growth in the manufacturing industry means continued growth in the American economy. Although growth has slowed recently, overall growth means the industry will likely continue to expand as hurricane recovery continues and markets normalize.

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