ISM Manufacturing: Modest Decline But Still Strong
November 1, 2017
Bottom Line: ISM's Survey of manufacturing activity fell slightly more than expected after eclipsing 13+ year highs last month. New Orders decelerated less than inventories, suggesting continued moderate growth going forward. 16 of 18 industries surveyed reported growth, while 2 reported steady activity. Anecdotal evidence suggested some increase price pressures due to supply disruptions around the hurricanes. Finally, employment growth in the manufacturing sector decelerated but was modestly above the average survey level for the last twelve months.
The ISM Manufacturing Index FELL by 2.1 points in October to 58.7%, compared with market expectations for a smaller decline to a 59.5%
This indicates that manufacturing activity expanded modestly during the month.
- New Orders declined slightly from 64.6% to 63.4%. Meanwhile, Export Orders declined slightly.
- Production declined slightly from 62.2% to 61.0%. Consequently, Order Backlogs grew sharply.
- Inventories declined sharply from 52.5% to 48.0%. They are modestly below the average survey level for the last twelve months.
- Employment declined slightly from 60.3% to 59.8%, suggesting there will be modest factory job creation in the upcoming payroll employment report.
- Prices declined modestly.
Quotes from Survey:
- "Raw material costs on the rise, but purchasing operation has navigated shortages caused by hurricanes." (Chemical Products)
- "Incoming orders are strong, mainly due to recovery efforts in the wake of Hurricanes Harvey and Irma. Backlogs are up due to operating inefficiencies." (Machinery)
- "Hurricanes have caused shortages in the resin market, resulting in price increases, inventory constraints and increased lead times." (Computer & Electronic Products)
- "Ongoing market growth. Minimal impact expected from hurricanes so far in this season." (Miscellaneous Manufacturing)
- "Business seems to be a bit depressed due to the storms last month, but is picking back up." (Fabricated Metal Products)
- "Business continues to be better than expected." (Transportation Equipment)
- "Business is good. Supplier deliveries have extended. Things are really picking up." (Food, Beverage & Tobacco Products)
- "Our plants are sold out for 2017 — we can’t take any new orders." (Nonmetallic Mineral Products)
- "In plastics processing, Hurricane Harvey is the reason for every price increase being announced — and virtually all suppliers are announcing price increases." (Plastics & Rubber Products)
Article by Contingent Macro Advisors