ISM October Surprise: Manufacturing Sector Is Booming!

November 1, 2013 by Jon C. Ogg

Two different manufacturing reports hit the tape this morning. The more important and broader measurement from the Institute for Supply Management (ISM) report on business covered the manufacturing sector for October. This reading came in at 56.4, versus consensus estimates from Bloomberg and from Dow Jones of 55.0. What really stands out, on top of handily beating estimates, is that this is a gain from the September reading of 56.2. Expectations were tame enough, due to the federal government shutdown, that this report actually feels like the manufacturing sector is booming.

Right before 9:00 a.m. EST, we saw that the very weak Markit purchasing managers index (PMI) for October fell to 51.8 from 52.8 in September. While the reading was better than the flash PMI reading of 51.1, it was still the worst reading of the past year.

Of the 18 manufacturing industries, 14 managed to report growth in October. The ISM data was broken down as follows (October versus September):

  • New Orders Index: 60.6 versus 60.5
  • Production Index: 60.8 versus 62.6
  • Inventories Index: 52.5 versus 50.0
  • Prices Index: 55.5 versus 56.5
  • Employment Index: 53.2 versus 55.4

A broad summary note said, “The (ISM) panel’s comments are generally positive about the current business climate; however, there are mixed responses on whether the government shutdown and potential default have had any effect on October’s results.”

Market’s PMI reading comments were as follows: “PMI signaled only modest improvement in business conditions; output growth joint was the weakest for over four years; new orders increase was at the slowest pace since April; and the rate of job creation quickened.”

ISM is a much more closely watched barometer, and this showed that the manufacturing sector withstood the federal government shutdown even better than most could have hoped for.