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Economy in Brief

ISM Manufacturing Index Surges During October
by Tom Moeller  November 2, 2020

• Factory sector activity strengthens to firmest level in two years.

• Component performance is uniformly improved.

• Price index continues to increase.

The Institute for Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity jumped to 59.3 during October after easing to 55.4 in September. It was the highest level for the index since September 2018. A reading of 55.8 was expected in the Action Economics Forecast Survey. It was the fifth consecutive month above the break-even level of 50, after indicating activity declines from March through May. During the last 15 years, there has been a 42% correlation between the composite index and the quarterly change in real GDP. Before the recession began there had been a 67% correlation.

The new orders index jumped to 67.9, the highest reading since January 2004. A slightly higher 40% (NSA) of survey respondents reported higher new orders while a greatly lessened 11% reported a decline. The production index rebounded to 63.0 from 61.0 in September. An improved 37% (NSA) of respondents reported higher production while a lessened 12% reported a decline. The inventories index rose to 51.9, its first month of inventory accumulation since June. The supplier deliveries measure rose to 60.5, indicating the slowest rate of order fulfillment in five months.

Also strengthening during October was the employment measure to 53.2 from 49.6 in September. That was increased from 27.5 in April. The index peaked at 60.1 in February 2018. A greatly increased 23% (NSA) of respondents reported higher payrolls while a lessened 18% reported declines.

Pricing power has developed broadly amongst industries as business activity improved. The prices paid index rose to 65.5 (NSA) from 62.8. That was increased from April's low of 35.3 and the highest level in exactly two years. A very much improved 35% of respondents reported higher prices while a lessened five percent reported declines.

Other series in the ISM report indicated improvement. The export order measure strengthened to 55.7 from 54.3. It was the highest level in roughly two years, increased from a low of 35.3 in April. The import series jumped to 58.1, its fourth consecutive month above the break-even level of 50. The order backlog measure strengthened to the highest level in roughly two years.

The ISM figures are based on responses from over 400 manufacturing purchasing executives from 20 industries, which correspond to their contribution to GDP in 50 states. These data are diffusion indexes where a reading above 50 indicates expansion. The figures from the Institute for Supply Management can be found in Haver's USECON database; further detail is found in the SURVEYS database. The expectations number is available in Haver's AS1REPNA database.

Tracking U.S. Real GDP Growth During the Pandemic from the Federal Reserve Bank of Philadelphia is available here.

ISM Mfg (SA) Oct Sep Aug Oct'19 2019 2018 2017
Composite Index 59.3 55.4 56.0 48.5 51.2 58.9 57.4
 New Orders 67.9 60.2 67.6 48.9 51.1 61.6 62.1
 Production 63.0 61.0 63.3 46.3 51.2 60.9 60.9
 Employment 53.2 49.6 46.4 47.9 50.9 56.9 56.8
 Supplier Deliveries 60.5 59.0 58.2 50.1 52.9 62.0 56.8
 Inventories 51.9 47.1 44.4 49.4 49.8 52.9 50.4
Prices Paid Index (NSA) 65.5 62.8 59.5 45.5 49.1 71.7 65.0
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