Monday, November 1, 2010

USA Manufacturing PMI Increases in October, at 5-Month High (Chart) *Signals continuation of economic recovery*


USA Manufacturing PMI: Largest monthly increase since January 2010

USA Manufacturing Increases in October +2.5%

Official Statement (Tempe, Arizona) - Economic activity in the manufacturing sector expanded in October for the 15th consecutive month, and the overall economy grew for the 18th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®. The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The manufacturing sector grew during October, with both new orders and production making significant gains. Since hitting a peak in April, the trend for manufacturing has been toward slower growth. However, this month's report signals a continuation of the recovery that began 15 months ago, and its strength raises expectations for growth in the balance of the quarter. Survey respondents note the recovery in autos, computers and exports as key drivers of this growth. Concerns about inventory growth are lessened by the improvement in new orders during October. With 14 of 18 industries reporting growth in October, manufacturing continues to outperform the other sectors of the economy."

Cycle History The current ISM Manufacturing PMI is up +24.4 and +44.9% from the Great Recession cyclical bottom of 32.5 in December 2008. The PMI is down -3.5 and -5.8% from the recent cyclical peak of 60.4 in April 2010. Therefore, the current PMI is closer to the cyclical peak than the trough. The PMI is a percentage - not a total. More about the PMI below the chart.

Trend The current PMI continues below the April 2010 peak and has decreased 4 out of the 6 subsequent months. The current PMI is equal to the 12-month moving average of 56.9 and above the 24-month and 36-month moving averages of 49.9 and 49.3, respectively. The 12-month moving average has leveled off, while the 24-month and 36-month moving averages continue ascending. The short-term trend has been downwards.(The 12-month, 24-month, and 36-month moving averages charts are not shown on this page).

Chart (ISM Monthly Manufacturing PMI) Below is a chart of the latest 36 months (3 years) of the Purchasing Managers' Index (PMI) from November 2007 through the latest month reported, October 2010. The PMI has been greater than 50, indicating USA manufacturing is expanding, since August 2009, for 15 consecutive months. As can be seen, the PMI bottomed in December 2008 at 32.5, ascended significantly through August 2009 to 52.8. The PMI then continued upwards to a peak of 60.4 in April 2010. There have been 4 monthly declines out of the latest 6 months. However, the PMI still indicates USA manufacturing is expanding, just a a slowing rate until the current October  PMI signals expansion.

Commentary The October PMI of 56.9 and a +2.5% increase from September is encouraging. The USA manufacturing sector actually expanded in October, increasing at an increasing rate. Norbert J. Ore, of The Institute of Supply Management stated, "However, this month's report signals a continuation of the recovery that began 15 months ago, and its strength raises expectations for growth in the balance of the quarter."

About the PMI
The ISM describes the PMI, the USA manufacturing metric as: A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. A PMI in excess of 42 percent, over a period of time, generally indicates an expansion of the overall economy. The PMI is a composite of five indexes: New Orders, Production, Employment, Supplier Deliveries, and Inventories. 18 manufacturing industries are reported and represented in the PMI: Primary Metals; Apparel, Leather & Allied Products; Transportation Equipment; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Computer & Electronic Products; Paper Products; Chemical Products; Food, Beverage & Tobacco Products; Printing & Related Support Activities. The five industries reporting contraction in August are: Furniture & Related Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Plastics & Rubber Products; and Machinery.

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*Data courtesy of the Institute for Supply Management*

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