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ISM Manufacturing: Sustains Rebound into Expansion Territory

November 1, 2016
Bottom Line: Manufacturing activity expanded in October, holding above the 50 breakeven level again after a surprise dip in August. The components of the report were positive but somewhat mixed, as were anecdotal quotes across industries.. Employment in the manufacturing sector grew, and was at its highest level in the last 16 months. This bodes well for manufacturing jobs in Friday's report. New Orders fell modestly but so too did inventories, though there was likely some volatility in these components due to the hurricane in the Southeast . Prices paid, increased from 53.0% to 54.5% this month indicating an increase in the price of raw materials. A special question on the impact of the Hanjin bankruptcy revealed that few manufacturing businesses were impact in any lasting or material way. Overall the report suggests modest manufacturing activity.

The ISM Manufacturing Index ROSE by 0.4 points in October to 51.9%, compared with market expectations for a smaller increase to a 51.7% This indicates that manufacturing activity expanded modestly during the month.

New Orders declined moderately from 55.1% to 52.1%. Meanwhile, Export Orders grew slightly. Production grew modestly from 52.8% to 54.6%. Consequently, Order Backlogs declined sharply.

Inventories declined modestly from 49.5% to 47.5%. They are modestly above the average survey level for the last twelve months.

Employment grew moderately from 49.7% to 52.9%, suggesting there will be modest factory job creation in the upcoming payroll employment report. Prices grew modestly.

Responding to special question on bankruptcy of Hanjin Shipping Company - 52% said they were not impacted. 14% said they saw a material impact on their business but it was manageable. Less than 1% said the impact was large and material. 30% said it was small and not material.

Quotes from Survey:

"Domestic business steady. Export business trending higher." (Chemical Products)

"We are looking at a considerable slowdown for October and November. Production is down 20 percent." (Primary Metals)

"Business is much better."
(Fabricated Metal Products)

"Due to the hurricane and other storms, our business is up significantly." (Machinery)

"Hard to predict oil price dynamics, but there seems to be a consensus that the market is stabilizing, at least above USD 50 bbl this month." (Petroleum & Coal Products)