October Manufacturing Report Still Positive Overall

An October manufacturing report shows that while manufacturing activity is expanding, it declined from September’s 59.4 percent to 59.1 in October. The Associated Press reports that manufacturing felt the increasing strain of rising energy and raw materials prices. The Institute of Supply Management (ISM) ranks activity with values above 50 indicating expansion and those below 50 showing shrinking activity. The ISM polled 240 purchasing executives to accumulate their October report.

“The strength of this survey indicates much firmer industrial production and durable goods numbers ahead. It is consistent with GDP growth in excess of 4 percent. That will keep unemployment falling, and the Fed tightening,” said Ian Shepherdson, the chief U.S. economist at High Frequency Economics, speaking to Bloomberg.

Costs increased from September’s 78 percent to 84 percent in October, according to the ISM report. This is not a record high but it is close. May 2004 saw an 86 percent increase and June 1950 saw a 100 percent value increase.

The Associated Press reported that Norbert Ore, chairman of ISM’s business survey committee said, “Rising prices and energy cost in particular, are of major concern as manufacturers are struggling to control costs.”

The Commerce Department reported that the construction sector is healthy while spending increased 0.5 percent in September reaching another record high. The Commerce report cited builders taking advantage of low interest rates for the time being. Spending increased to a seasonally adjusted annual rate of $1.12 trillion.

The ISM’s employment index increased from 53.1 percent to 55 percent for their October report while inventories fell to 48.1 percent from 49.6 with energy raw material shipping disruptions caused by the Gulf hurricanes according to Bloomberg. New export orders saw lower values falling from 56.9 percent to 54.8 percent.

“A strong recovery in new order growth in recent months encouraged manufacturers to increase output and employment in October, despite the potential headwinds of high commodity and energy prices,” David Hensley, director of global economics coordination at JP Morgan, told Reuters.

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