ISM: US Manufacturing Index Slows in October

Nov 21, 2017

A drop in both supplier deliveries and inventories were due to the impact of supply-chain difficulties post-hurricanes.

Back-to-back hurricanes and their impact on production and transportation of raw materials put a crimp in manufacturing expansion in October, says an industry survey released on Nov.

However, the slowdown puts the sector's growth back in line with the trend of the past year after a spike in the prior month, with another year of growth likely, the Institute for Supply Management (ISM) said.

The ISM's purchasing managers index retreated to 58.7 last month, from the 13-year high of 20.8 in September, but that was nearly identical to August and remains above the average for the past 12 months. Any index above 50 indicates growth in the sector.

The new orders index slipped 1.2 points to 53.4, but the biggest hit to the sector came from the three-point drop in supplier deliveries and the 4.5 point decline in inventories, both hit by transportation difficulties.

Those declines "were the biggest contributor to the PMI expansion reduction, reflecting the impact of supply-chain difficulties post-hurricane," said Timothy Fiore, chair of ISM's Manufacturing Business Survey Committee.

He cited problems for companies needing inputs like plastics and chemicals -- especially from the Houston refineries hit hard by Hurricane Harvey.

Manufacturers expected to see three months of transportation difficulties in the wake of the hurricanes, as well as six months of impacts on prices, he said.

However, the employment index, which slipped to just below 60 in October, has shown "back-to-back-to-back strong expansion months not seen since June 2011 when we had about six months of employment numbers over 60," Fiore told reporters in a conference call.

Excluding the hurricane impact, the sector is on track for a strong expansion number likely to last another 12 months, he said.

Analysts agreed that the news in the report was more upbeat than the headline numbers might indicate.

"Delivery delays lengthened at a slower rate and inventories were drawn down in the month, which is scored as a negative in the report but is really positive since it creates the potential for future production increases to replenish inventory levels," John Ryding of RDQ Economics, said in research note.

And Jim O'Sullivan of High Frequency Economics said, "the data continue to suggest a pick-up in the trend in growth in recent months."

 

Source: Industry Week