Money & The Economy

Manufacturing continues expansion in October, employment and exports increasing

  • New Orders, Production, and Employment Growing
  • Supplier Deliveries Slowing at Faster Rate; Backlog Growing
  • Raw Materials Inventories Growing; Customers’ Inventories Too Low
  • Prices Increasing at Faster Rate; Exports and Imports Growing    

Economic activity in the manufacturing sector expanded in October, and the overall economy grew for the 114th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

“The October PMI registered 57.7 percent, a decrease of 2.1 percentage points from the September reading of 59.8 percent. The New Orders Index registered 57.4 percent, a decrease of 4.4 percentage points from the September reading of 61.8 percent,” said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee. “The Production Index registered 59.9 percent, a 4 percentage-point decrease compared to the September reading of 63.9 percent. The Employment Index registered 56.8 percent, a decrease of 2 percentage points from the September reading of 58.8 percent. The Supplier Deliveries Index registered 63.8 percent, a 2.7-percentage point increase from the September reading of 61.1 percent. The Inventories Index registered 50.7 percent, a decrease of 2.6 percentage points from the September reading of 53.3 percent. The Prices Index registered 71.6 percent, a 4.7-percentage point increase from the September reading of 66.9 percent, indicating higher raw materials prices for the 32nd consecutive month.”

“Comments from the panel reflect continued expanding business strength. Demand remains moderately strong, with the New Orders Index easing to below 60 percent for the first time since April 2017, the Customers’ Inventories Index remaining low but improving, and the Backlog of Orders Index remaining steady,” he added. “Consumption softened, with production and employment continuing to expand, but at lower levels compared to September. Inputs — expressed as supplier deliveries (increased), inventories and imports — retained September’s levels. Continued supply chain delivery difficulties led to an increased consumption of inventory, and import expansion was stable. Lead-time extensions continue, while steel and aluminum prices are stabilizing. Supplier labor issues and transportation difficulties continue to disrupt production, but at more manageable levels.”

“The expansion of new export orders softened, but five of six major industries contributed, up from two in September. Prices pressure continues, with the index returning above 70 percent. Overall, the manufacturing community continues to expand, but at the lowest level since April 2018,” says Fiore.

MANUFACTURING AT A GLANCE

October 2018

Index

Series
Index

Oct

Series
Index

Sep

Percentage

Point

Change

Direction

Rate of
Change

Trend*
(Months)

PMI®

57.7

59.8

-2.1

Growing

Slower

26

New Orders

57.4

61.8

-4.4

Growing

Slower

34

Production

59.9

63.9

-4.0

Growing

Slower

26

Employment

56.8

58.8

-2.0

Growing

Slower

25

Supplier Deliveries

63.8

61.1

+2.7

Slowing

Faster

25

Inventories

50.7

53.3

-2.6

Growing

Slower

10

Customers’ Inventories

43.3

40.5

+2.8

Too Low

Slower

25

Prices

71.6

66.9

+4.7

Increasing

Faster

32

Backlog of Orders

55.8

55.7

+0.1

Growing

Faster

21

New Export Orders

52.2

56.0

-3.8

Growing

Slower

32

Imports

54.3

54.5

-0.2

Growing

Slower

21

OVERALL ECONOMY

Growing

Slower

114

Manufacturing Sector

Growing

Slower

26

Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Supplier Deliveries Indexes.
*Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY

Commodities Up in Price
Aluminum* (24); Aluminum-Based Products (6); Castings; Chemicals; Copper; Corrugate (25); Diesel; Electronic Components (3); Freight (9); Hydrochloric Acid (2); Metal-Based Products; Methanol; Natural Gas; Nylon (5); Oil-Based Products; Plastic Molded Items; Plastic Resins; Polyethylene Terephthalate (PET) Products; Resistors; Scrap Metal; Steel* (2); Steel — Stainless (7); Steel-Based Products (6); and Sulfuric Acid (2).

Commodities Down in Price
Aluminum*; Caustic Soda; Steel* (2); Steel — Cold Rolled; and Steel — Hot Rolled (2).

Commodities in Short Supply
Aluminum-Based Products; Capacitors (16); Electronic Components (6); Labor (3); Nylon (2); Printed Circuit Board Components; Resistors (12); and Steel-Based Products.

The number of consecutive months the commodity is listed is indicated after each item.
*Indicates both up and down in price.

OCTOBER 2018 MANUFACTURING INDEX SUMMARIES

PMI®
Manufacturing expanded in October as the PMI® registered 57.7 percent, a decrease of 2.1 percentage points from the September reading of 59.8 percent. “This indicates growth in manufacturing for the 26th consecutive month, led by moderately strong production output and continued supplier delivery performance issues,” says Fiore. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI® above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the October PMI® indicates growth for the 114th consecutive month in the overall economy and the 26th straight month of growth in the manufacturing sector. “The past relationship between the PMI® and the overall economy indicates that the PMI® for October (57.7 percent) corresponds to a 4.5-percent increase in real gross domestic product (GDP) on an annualized basis.”

THE LAST 12 MONTHS

Month

PMI®

Month

PMI®

Oct 2018

57.7

Apr 2018

57.3

Sep 2018

59.8

Mar 2018

59.3

Aug 2018

61.3

Feb 2018

60.8

Jul 2018

58.1

Jan 2018

59.1

Jun 2018

60.2

Dec 2017

59.3

May 2018

58.7

Nov 2017

58.2

Average for 12 months – 59.2

High – 61.3

Low – 57.3

New Orders
ISM®‘s New Orders Index registered 57.4 percent in October, which is a decrease of 4.4 percentage points when compared to the 61.8 percent reported for September, indicating growth in new orders for the 34th consecutive month. “Customer demand expansion softened for the second consecutive month, with the index dropping below 60 percent for the first time since April 2017, when it registered 57.1 percent,” says Fiore. A New Orders Index above 52.4 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

Eleven of 18 industries reported growth in new orders in October, in the following order: Plastics & Rubber Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Textile Mills; Printing & Related Support Activities; Machinery; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Transportation Equipment; Computer & Electronic Products; and Chemical Products. The five industries reporting a decrease in new orders in October are: Petroleum & Coal Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; and Paper Products.

New Orders

%Higher

%Same

%Lower

Net

Index

Oct 2018

27.2

54.5

18.3

+8.9

57.4

Sep 2018

31.4

57.7

10.9

+20.5

61.8

Aug 2018

35.4

54.3

10.3

+25.1

65.1

Jul 2018

29.0

60.1

10.9

+18.1

60.2

Production
ISM®‘s Production Index registered 59.9 percent in October, which is a decrease of 4 percentage points when compared to the 63.9 percent reported for September, indicating growth in production for the 26th consecutive month. “Production expansion continued in October, but at lower expansion rates compared to September. Labor constraints throughout the supply chain, impacts due to lead-time expansions and transportation difficulties continue to limit full production potential,” says Fiore. An index above 51.5 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The 13 industries reporting growth in production during the month of October — listed in order — are: Textile Mills; Plastics & Rubber Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Fabricated Metal Products; Machinery; Computer & Electronic Products; Transportation Equipment; Chemical Products; and Paper Products. The three industries reporting a decrease in production in October are: Wood Products; Nonmetallic Mineral Products; and Primary Metals.

Production

%Higher

%Same

%Lower

Net

Index

Oct 2018

28.2

60.7

11.2

+17.0

59.9

Sep 2018

33.6

56.7

9.6

+24.0

63.9

Aug 2018

35.3

53.8

10.9

+24.4

63.3

Jul 2018

31.5

52.6

15.9

+15.6

58.5

Employment
ISM®‘s Employment Index registered 56.8 percent in October, a decrease of 2 percentage points when compared to the September reading of 58.8 percent. This indicates growth in employment in October for the 25th consecutive month. “Employment continued to expand, supporting production growth. Respondents continued to note labor-market issues as a constraint to their production and their suppliers’ production capability,” says Fiore. An Employment Index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, the 11 reporting employment growth in October — listed in order — are: Miscellaneous Manufacturing; Furniture & Related Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Paper Products; Plastics & Rubber Products; Chemical Products; Primary Metals; Machinery; Fabricated Metal Products; and Transportation Equipment. The two industries reporting a decrease in employment in October are: Apparel, Leather & Allied Products; and Printing & Related Support Activities.

Employment

%Higher

%Same

%Lower

Net

Index

Oct 2018

22.5

67.2

10.3

+12.2

56.8

Sep 2018

26.1

62.9

11.0

+15.1

58.8

Aug 2018

26.6

63.6

9.8

+16.8

58.5

Jul 2018

27.1

61.2

11.7

+15.4

56.5

Supplier Deliveries
The delivery performance of suppliers to manufacturing organizations slowed in October, as the Supplier Deliveries Index registered 63.8 percent. This is 2.7 percentage points higher than the 61.1 percent reported for September. “This is the 25th straight month of slowing supplier deliveries and indicates supply chains’ difficulty in keeping up with production demand. The index reversed an expansion softening from the prior month. Lead times continue to extend, supply chain labor issues continue to restrict performance, and transportation issues are continuing to limit supplier execution,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The 14 industries reporting slower supplier deliveries in October — listed in order — are: Apparel, Leather & Allied Products; Furniture & Related Products; Textile Mills; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Machinery; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Fabricated Metal Products; Paper Products; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; and Transportation Equipment. No manufacturing industries reported faster supplier deliveries during the month of October.

Supplier Deliveries

%Slower

%Same

%Faster

Net

Index

Oct 2018

30.4

66.9

2.7

+27.7

63.8

Sep 2018

28.3

67.1

4.6

+23.7

61.1

Aug 2018

32.6

62.9

4.5

+28.1

64.5

Jul 2018

28.5

67.8

3.7

+24.8

62.1

Inventories*
The Inventories Index registered 50.7 percent in October, which is a decrease of 2.6 percentage points when compared to the 53.3 percent reported for September. “Inventories expanded for the 10th consecutive month, but at a marginal level, barely keeping up with production and reflecting continued difficulties with supplier deliveries,” says Fiore. An Inventories Index greater than 43 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The seven industries reporting higher inventories in October — listed in order — are: Wood Products; Textile Mills; Petroleum & Coal Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; and Transportation Equipment. The six industries reporting a decrease in inventories in October — listed in order — are: Fabricated Metal Products; Chemical Products; Primary Metals; Nonmetallic Mineral Products; Paper Products; and Machinery.

Inventories

%Higher

%Same

%Lower

Net

Index

Oct 2018

18.8

63.6

17.5

+1.3

50.7

Sep 2018

20.6

65.4

14.0

+6.6

53.3

Aug 2018

25.2

60.4

14.5

+10.7

55.4

Jul 2018

22.3

61.9

15.8

+6.5

53.3

Customers’ Inventories*
ISM®‘s Customers’ Inventories Index registered 43.3 percent in October, which is 2.8 percentage points higher than the 40.5 percent reported for September, indicating that customers’ inventory levels were considered too low. “Customers’ inventory levels are too low for the 25th consecutive month; however, inventories recovered to their strongest level since April 2018, when the index recorded 44.3 percent,” says Fiore.

The two manufacturing industries reporting customers’ inventories as too high during the month of October are: Nonmetallic Mineral Products; and Electrical Equipment, Appliances & Components. The nine industries reporting customers’ inventories as too low during October — listed in order — are: Plastics & Rubber Products; Fabricated Metal Products; Machinery; Paper Products; Furniture & Related Products; Chemical Products; Food, Beverage & Tobacco Products; Primary Metals; and Computer & Electronic Products. Six industries reported no change in customers’ inventories in October as compared with September.

Customers’
Inventories

%
Reporting

%Too
High

%About
Right

%Too
Low

Net

Index

Oct 2018

79

10.1

66.4

23.5

-13.4

43.3

Sep 2018

79

6.0

69.0

25.0

-19.0

40.5

Aug 2018

82

7.8

66.5

25.7

-17.9

41.0

Jul 2018

79

4.8

69.2

26.0

-21.2

39.4

Prices*
The ISM® Prices Index registered 71.6 percent in October, an increase of 4.7 percentage points from the September reading of 66.9 percent, indicating an increase in raw materials prices for the 32nd consecutive month. “The price increases across all industry sectors continue and at higher expansion levels than the previous month. The Business Survey Committee noted that price increases are continuing to soften in metals (all steels, steel components and aluminum). Increases continue in various basic chemicals, corrugate and packaging products, diesel, natural gas, freight, labor, electrical and electronic components, and products manufactured primarily from steel. Shortages continue in electrical and electronic components, labor, and freight,” says Fiore. A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

Seventeen of the 18 industries reported paying increased prices for raw materials in October, in the following order: Textile Mills; Petroleum & Coal Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Paper Products; Printing & Related Support Activities; Plastics & Rubber Products; Apparel, Leather & Allied Products; Transportation Equipment; Primary Metals; Chemical Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Machinery; Miscellaneous Manufacturing; Fabricated Metal Products; and Nonmetallic Mineral Products. No industries reported a decrease in prices for raw materials in October.

Prices

%Higher

%Same

%Lower

Net

Index

Oct 2018

51.1

41.0

7.9

+43.2

71.6

Sep 2018

42.3

49.1

8.6

+33.7

66.9

Aug 2018

51.1

42.0

6.8

+44.3

72.1

Jul 2018

54.6

37.3

8.1

+46.5

73.2

Backlog of Orders*
ISM®‘s Backlog of Orders Index registered 55.8 percent in October, which is 0.1 percentage point higher than the 55.7 percent reported in September, indicating growth in order backlogs for the 21st consecutive month. “Backlogs continued to grow at levels comparable to September,” says Fiore.

The 12 industries reporting growth in order backlogs in October — listed in order — are: Textile Mills; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Printing & Related Support Activities; Plastics & Rubber Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Machinery; Transportation Equipment; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Chemical Products. The two industries reporting a decrease in order backlogs during October are: Fabricated Metal Products; and Primary Metals.

Backlog of
Orders

%
Reporting

%Higher

%Same

%Lower

Net

Index

Oct 2018

89

26.9

57.8

15.3

+11.6

55.8

Sep 2018

89

26.7

57.9

15.4

+11.3

55.7

Aug 2018

87

30.3

54.4

15.3

+15.0

57.5

Jul 2018

87

24.0

61.3

14.7

+9.3

54.7

New Export Orders*
ISM®‘s New Export Orders Index registered 52.2 percent in October, a decrease of 3.8 percentage points when compared to the 56 percent reported for September, indicating growth in new export orders for 32 consecutive months. “The index softened during the period, but five of the six big industry sectors contributed, up from two in September,” says Fiore.

The eight industries reporting growth in new export orders in October — listed in order — are: Textile Mills; Miscellaneous Manufacturing; Chemical Products; Computer & Electronic Products; Transportation Equipment; Plastics & Rubber Products; Fabricated Metal Products; and Machinery. The three industries reporting a decrease in new export orders in October are: Wood Products; Electrical Equipment, Appliances & Components; and Primary Metals. Seven industries reported no change in new export orders in October as compared to September.

New Export
Orders

%
Reporting

%Higher

%Same

%Lower

Net

Index

Oct 2018

80

12.3

79.7

8.0

+4.3

52.2

Sep 2018

80

19.4

73.3

7.3

+12.1

56.0

Aug 2018

79

20.7

69.1

10.2

+10.5

55.2

Jul 2018

78

18.1

74.3

7.6

+10.5

55.3

Imports*
ISM®‘s Imports Index registered 54.3 percent in October, a decrease of 0.2 percentage point when compared to the 54.5 percent reported for September, indicating that imports grew in October for the 21st consecutive month. “Imports expanded at levels similar to the previous month,” says Fiore.

The 10 industries reporting growth in imports during the month of October — listed in order — are: Apparel, Leather & Allied Products; Textile Mills; Food, Beverage & Tobacco Products; Furniture & Related Products; Plastics & Rubber Products; Fabricated Metal Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Miscellaneous Manufacturing. The four industries reporting a decrease in imports during October are: Petroleum & Coal Products; Primary Metals; Nonmetallic Mineral Products; and Chemical Products.

Imports

%
Reporting

%Higher

%Same

%Lower

Net

Index

Oct 2018

86

17.6

73.5

8.9

+8.7

54.3

Sep 2018

85

19.4

70.2

10.4

+9.0

54.5

Aug 2018

87

17.2

73.6

9.3

+7.9

53.9

Jul 2018

82

19.4

70.6

10.0

+9.4

54.7

*The Inventories, Customers’ Inventories, Prices, Backlog of Orders, New Export Orders and Imports Indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy
Average commitment lead time for Capital Expenditures increased by five days in October to 152 days. Average lead time for Production Materials decreased by one day to 67 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies increased by one day to 35 days.

Percent Reporting

Capital
Expenditures

Hand-to-
Mouth

30
Days

60
Days

90
Days

6
Months

1 Year+

Average
Days

Oct 2018

20

5

8

19

25

23

152

Sep 2018

19

7

10

19

23

22

147

Aug 2018

19

8

7

22

23

21

144

Jul 2018

23

7

9

15

28

18

137

Production
Materials

Hand-to-
Mouth

30
Days

60
Days

90
Days

6
Months

1 Year+

Average
Days

Oct 2018

13

32

26

18

8

3

67

Sep 2018

12

34

28

15

7

4

68

Aug 2018

11

36

27

14

8

4

69

Jul 2018

11

37

23

18

7

4

69

MRO Supplies

Hand-to-
Mouth

30
Days

60
Days

90
Days

6
Months

1 Year+

Average
Days

Oct 2018

37

39

14

7

2

1

35

Sep 2018

38

36

16

7

3

0

34

Aug 2018

41

37

15

4

2

1

33

Jul 2018

37

41

13

6

2

1

35

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Carl Fox

Carl Fox is the senior money and finance writer for Conservative Daily News. Follow him in the "Money & The Economy" section at CDN and see his posts on the "Junior Economists" Facebook page.

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