Manufacturing sector contracted at a slower rate in October

The Purchasing Managers’ Index (PMI) rose 0.5 percentage points to 48.3% in October, from 47.8% in September, as economic activity in the manufacturing sector contracted for the third consecutive month but at a slower rate than in September, according to the Institute for Supply Management (ISM). A reading above 50% indicates the manufacturing economy is expanding and below 50% indicates it’s contracting.

The ISM released Friday (Nov. 1) the Manufacturing ISM Report on Business for October.

The new orders index rose 1.8 percentage points to 49.1% in October. The backlog of orders index fell 1 percentage point to 44.1%. The employment index rose 1.4 percentage points to 47.7%. The supplier deliveries index fell 1.6 percentage points to 49.5%. The inventories index increased 2 percentage points to 48.9%. The prices index decreased by 4.2 percentage points to 45.5%. The new export orders index increased by 9.4 percentage points to 50.4%. The imports index fell 2.8 percentage points to 45.3%.

The overall economy grew for the 126^th consecutive month with the GDP growing at 1.6%. Sentiment improved from the previous month but remains more cautious than optimistic, according to the report. Demand contracted with the new orders index falling marginally, the customers’ inventories index was in “about right” territory, and the backlog of orders index fell for the sixth consecutive month and at a faster rate. The new export orders index rose into a rate of expansion and likely contributing to the slowing contraction in the new orders index. Consumption, which is measured by the production and employment indexes, fell as a result of lack of demand but contributed a combined 0.3 percentage point increase to the PMI.

Inputs, which include supplier deliveries, inventories and imports, were lower again in October as a result of a decline in supplier delivery but offset by improvements in inventories. The result was a combined 0.4 percentage point net improvement in the supplier deliveries and inventories indexes. Imports contraction accelerated. Overall, inputs show supply chains are meeting demand and companies are more confident that materials received will be consumed in a reasonable time period. Prices fell for the fifth consecutive month and at a faster rate.

Global trade remains the most significant issue, the report shows. Food, beverage and tobacco products remained the strongest industry, while transportation equipment was the weakest. Overall, sentiment remains cautious with regard to near-term growth.

The following manufacturing industries reported growth in October: furniture and related products; printing and related support activities; food, beverage and tobacco products; wood products; and computer and electronic products. The following industries report contraction: primary metals, apparel, leather and allied products; textile mills; transportation equipment; plastics and rubber products; machinery; chemical products; petroleum and coal products; electrical equipment, appliances and components; fabricated metal products; miscellaneous manufacturing; and paper goods.