The Institute for Supply Management (ISM) manufacturing fell 2.1 points to 58.7 in October, the fourteenth consecutive monthly expansion. Markets expected a smaller pullback to 59.5.
All components except customers’ inventories (+1.5 points to 43.5) and imports (no change at 54) lost some ground in the month. Notable declines occurred in inventories (-4.5 to 48), supplier deliveries (-3.0 to 61.4), prices (-3.0 to 68.5), and orders backlog (-3.0 to 55).
The decline in new orders and inventories pushes up the spread between the two – useful as a leading indicator of activity – to 15.4 (+3.3 points). This remains consistent with a view of manufacturing activity holding or strengthening in coming months.
Sixteen of the eighteen manufacturing industries reported expansion in October, with paper products, nonmetallic mineral products, and machinery registering the strongest advances. No industry recorded a contraction in activity in October.
Key Implications
The key subcomponents affected by hurricanes in August and September were largely responsible for the pullback in October. Namely, supplier inventories, prices, and, to a lesser extent, backlog of orders fell back after recording strong, hurricane-related advances in September. Comments by survey participants suggest that operations impacted by the hurricanes are recovering on schedule, although component shortages remain with price increases expected as a consequence.
Abstracting from the storm-related impacts, small declines in new orders, production, and employment are likely more a reflection of monthly noise rather than the start of a new trend. All three categories have held near cycle highs since mid-year, and hurricane rebuilding efforts are likely to provide ongoing support over the next few months. Overall, this report remains consistent with a resilient and robust U.S. manufacturing sector supported by strong foreign demand that is helping to offset domestic policy uncertainty and U.S. dollar volatility.
