ISM report shows manufacturing growth firming

Production, employment data also increases as manufacturing enters a "sustainable recovery mode"

Bob Vavra -- Plant Engineering, 11/3/2009 10:32:17 AM

Economic activity in the manufacturing sector expanded in October for the third consecutive month, and the overall economy grew for the sixth consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business.
The report was issued Nov. 1 by Norbert J. Ore, chair of the Institute for Supply Management Manufacturing Business Survey Committee. "The manufacturing sector grew for the third consecutive month in October, and the rate of growth is the highest since April 2006 when the PMI registered 56%. The jump in the index was driven by production and employment, with both registering significant gains. Production appears to be benefiting from the continuing strength in new orders, while the improvement in employment is due to some callbacks and opportunities for temporary workers. Overall, it appears that inventories are balanced and that manufacturing is in a sustainable recovery mode."
The recovery in manufacturing strengthened in October as the PMI registered 55.7%, which is 3.1%age points higher than the 52.6% reported in September, and the highest reading for the index since April 2006 (56%). A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.
A PMI in excess of 41.2%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the sixth consecutive month in the overall economy, as well as expansion in the manufacturing sector for the third consecutive month. Ore stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through October (44.6%) corresponds to a 1.1% increase in real gross domestic product (GDP). However, if the PMI for October (55.7%) is annualized, it corresponds to a 4.5% increase in real GDP annually."
ISM's Production Index registered 63.3% in October, which is an increase of 7.6%age points from the September reading of 55.7%. An index above 50.4%, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. This is the fifth consecutive month the Production Index has registered above 50%.
ISM's Employment Index registered 53.1% in October, which is 6.9%age points higher than the 46.2% reported in September. This is the first month of growth in manufacturing employment following 14 consecutive months of decline. An Employment Index above 49.7%, over time, is generally consistent with an increase in the Bureau of Labor Statistics data on manufacturing employment.