United States: ISM manufacturing index falls in October on broad-based softening
November 1, 2018
The U.S. manufacturing sector slowed in October but continued to register solid growth. The Institute for Supply Management (ISM) manufacturing index fell from 59.8 in September to 57.7 in October, missing market expectations of a softer decline to 59.1. The index nevertheless remained comfortably above the 50-point threshold that separates expansion from contraction in the U.S. manufacturing sector, where it has been for 26 consecutive months.
The weaker improvement in operating conditions in October was broad-based, although it was driven in good part by softer demand conditions. Indeed, both the output and new orders indexes fell sharply in the month, with the latter registering its lowest reading since April 2017. Interestingly, the export order index also declined by a similar magnitude, indicating demand from both domestic and foreign markets weakened. The employment index also eased somewhat in October, while backlogs of work grew at about the same pace as in September. Nevertheless, the manufacturers’ inventories increased at a much slower pace in October, while on the other hand customers’ inventories continued to deplete, but at a softer rate than in September.
Meanwhile, pressure on manufacturers’ supply chains were apparent and heightened in October. Indeed, supplier delivery times increased at a faster rate than in September, while the inflation index soared back to a reading above 70, where it had been for most of the year before briefly slipping in September. Lastly, import growth was broadly stable in the month.
Survey respondents continued to be overwhelmingly preoccupied with the impact of tariffs, most notably its supply-side effects on input availability and cost inflation. One respondent for instance signaled “mounting pressure due to pending tariffs. Bracing for delays in material from China —a rush of orders trying to race tariff implementation is flooding shipping and customs”, while others noted that “all electronic components are having shortages and much longer lead times that impact our production”.
Author: Joffrey Simonet, Economist