Manufacturing Holds Steady

Don Hogsett, November 7, 2005

Tempe, Ariz. — Holding relatively steady after surging ahead the month before, U.S. manufacturing continued to grow, if at a modestly slower pace in October, the nation’s purchasing managers reported.

The Institute for Supply Management (ISM) said its October gauge of manufacturing activity dipped slightly, to 59.1 from a reading of 59.4 in September, following a big leap of almost 6 percent in August.

But what do those numbers really mean? The purchasing managers, who track the business and write the checks for the nation’s big companies, say an index reading “in excess of 42.7 percent, over a period of time, generally indicates an expansion of the overall economy.” That said, the ISM reports that the October figure “indicates that both the overall economy and the manufacturing sector are growing.” Moreover, the trade group said, the average reading of 55.4 percent for the January-October period, “corresponds to a 4.6 percent increase in gross domestic product (GDP) on an annual basis.”

Norbert Ore, chairman of the ISM’s Manufacturing Business Survey Committee, said the manufacturing sector grew in October for a 29th straight month, with new orders and production both providing support, if growing at a modestly slower pace.

But the prices that manufacturers pay for raw materials and supplies keeps growing, rising 6 percent in October to a reading of 84 percent, up from 78 percent in September. Not only are prices rising, manufacturers are complaining that some commodities, notably chemicals, are in short supply and are on allocation and order control.

October snapshot
Manufacturing benchmarks Month-over-month percentage-point change

Source: Institute for Supply Management
Purchasing Managers’ Index -0.3%
New Orders -2.1
Production -1.1
Employment 1.9
Inventories -1.5
Customers’ Inventories -3.5
Cost of Supplies 6.0
Order Backlogs 0.5
Export Orders -2.1
Imports 4.8

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