Industry Market Trends

Manufacturing Growth Decelerates in October

Nov 02, 2011

U.S. manufacturing continued to expand in October, though at a slower pace than in previous months due to declines in exports and factory production.

Business activity in the United States manufacturing sector grew modestly in October, with the rate of expansion slowing down from the third-quarter average and resuming the overall trend of deceleration this year since the February growth peak. Despite the slowdown, economic conditions seem to be positive enough to avoid another recessionary dip.

According to the Institute for Supply Management's (ISM) latest manufacturing Report on Business, U.S. manufacturing expanded for the 27th consecutive month in October, reflecting growth in the national economy, which expanded for the 29th consecutive month.

The ISM purchasing managers' index (PMI), a key monthly gauge for the factory sector, dropped to 50.8 in October, down from the 51.6 reading for September but slightly above the 12-month low of 50.6 reached in August. Readings above 50 indicate overall expansion for the sector. Although manufacturing expanded last month, its rate of growth remained well below the average of 56.1 for the previous 12 months.

"The ISM report suggests that manufacturing activity is decelerating from the moderate pace achieved in the third quarter. Manufacturing production increased at a 4 percent annual rate in the third quarter as measured by the Federal Reserve's industrial production index," Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, wrote in an analysis of the ISM report. "MAPI expects a deceleration to a 2 percent annual rate of growth in the final three months of 2011, largely because of inventory rebalancing in the electronics and motor vehicle industries which faced supply disruptions earlier in the year."

The ISM production index fell to 50.1 in October, down from 51.2 in September. This marked the second consecutive month of growth following a period of contraction in August, which was the first time production had shrunk since May 2009.

The latest monthly findings fell short of expectations, as economists polled by MarketWatch had expected the PMI to rise to 52.1 in October.

"The decline in the index dovetails with other economic reports showing that the manufacturing industry has cooled off after an extended period of rapid growth," MarketWatch explains. "Political turmoil in Washington and a debt crisis in Europe have contributed to the slowdown. Manufacturers around the world have also seen their growth slow. The latest index readings from China, Japan and Russia, for example, are hovering around the 50 percent mark while South Korea, the U.K. and Brazil have fallen below that key level."

Only eight of the 18 industries tracked by the ISM reported growth last month: computer and electronic products; petroleum and coal products; food, beverage and tobacco products; non-metallic mineral products; primary metals; fabricated metal products; paper products; and machinery.

Meanwhile, six industries reported contraction in October: plastics and rubber products; chemical products; apparel, leather and allied products; printing and related support activities; electrical equipment, appliances and components; and miscellaneous manufacturing.

The difficult conditions in the manufacturing sector are reflected in several key indicators. The ISM's exports index dropped 3.5 percentage points to 50 last month, employment decreased 0.3 points to 53.5 and supplier deliveries fell 0.1 points to 51.3.

However, demand improved last month, with the new orders index rising from 49.6 in September to 52.4 in October, representing a return to growth following three consecutive months of contraction.

The prices index also plummeted last month, dropping from 56 in September to 41 in October, signaling lower costs for manufacturers. Of the 18 manufacturing industries tracked by the ISM, only two reported paying increased prices last month: furniture and related products; and computer and electronic products.

"Factories were among the first businesses to start growing after the recession officially ended in June 2009," the Associated Press reports. "However, factory activity slowed this spring. Consumers cut back on purchases in the face of higher prices for gas and food. And the earthquake in Japan disrupted supply chains, which slowed U.S. auto production. Despite slower growth in U.S. manufacturing, economists were encouraged by details in the ISM report."

Earlier

Manufacturing Grows at Fastest Pace in Almost 7 Years

Manufacturing Growth Accelerates in September

U.S. Manufacturing Expands in August, but is Struggling

Resources

October 2011 Manufacturing ISM Report on Business

Institute for Supply Management, Nov. 1, 2011

MAPI Analysis on ISM Index: Manufacturing Activity Decelerating

by Daniel J. Meckstroth

Manufacturers Alliance/MAPI, Nov. 1, 2011

U.S. Manufacturing Growth Slows in October

by Jeffry Bartash

MarketWatch, Nov. 1, 2011

Factory Activity Slows as Economy Stays Sluggish

by Christopher S. Rugaber

The Associated Press, Nov. 1, 2011

Factory Growth Eases in October, No Recession Seen

by Leah Schnurr

Reuters, Nov. 1, 2011