- The Institute for Supply Management’s (ISM) Manufacturing Index increased by 3.9 points in October to 59.3, the highest reading since September 2018. The October outturn came in above market expectations, which called for a 55.6 print.
- The new orders subcomponent rose by 7.7 points to 67.9 from 60.2 in September. Meanwhile, new export orders improved by 1.4 points to 55.7. The backlog of orders sub-index came in at 55.7, a half-point increase relative to a month prior.
- Like in September, consumption – measured by the production and employment sub-indices – continued to be a positive factor. Taken together, the production (+2.0) and employment (+3.6) subcomponents edged up by 5.6 points. Encouragingly, the employment sub-index also broke into expansion territory for the first time since July 2019.
- The supplier deliveries subcomponent registered its fifth-straight month of increases, rising by 1.5 points to 60.5 and denoting slower delivery performances. This notably reflects ongoing difficulties suppliers are facing due to COVID-19, including challenges in supplier labor markets and transportation.
- The number of industries reporting growth on the month increased from 14 to 15 out of a total of 18 industries counted in the report. Most industries also reported an increase in prices paid in October, with the prices index jumping to 65.5 from 62.8. Raw materials, including aluminum, copper and steel have all recorded price increases.
Key Implications
- The recovery in the manufacturing sector continues to impress. Indeed, the sector is well entrenched in expansion territory, registering its sixth consecutive month above the 50 mark. As was borne out in last week’s data release for Q3 GDP, manufacturing output had enjoyed strong support from goods spending over the last few months. Spending in that category rebounded by 45.4% (annualized) in the third quarter, led by a whopping 82.2% jump in durable goods spending. The recovery in services spending was comparatively more modest, increasing by 38.4% on the quarter.
- Despite October’s solid outturn, the U.S. manufacturing sector’s outlook is not without a few hurdles. The rapid resurgence in new COVID-19 cases in the U.S. and across the Atlantic constitutes a downside risk to the broader economic recovery. Additionally, growth in durable goods spending will likely shift into lower gear as much of the pent-up demand from spring and summer is satisfied. Combined with elevated pandemic-related uncertainty, and the fading of previous fiscal stimulus, expect the ride to remain bumpy over the next few months.
