; New Orders Especially Strong
The ISM (Institute for Supply Management) manufacturing index jumped to 59.3 percent in October, from 55.4 percent in September; a reading of above 50 percent indicates an increase in manufacturing activity. This was the highest level for the ISM index in over two years.
Of the five components used to calculate the overall index, all were over 50, and all increased over the month. The employment and inventories components both moved from contraction in September to expansion in October. The new orders component was especially strong, jumping from 60.2 percent in September to 67.9 percent in October; this was the highest value for new orders since 2004. The strength in new orders bodes well for expansion in manufacturing into 2021.
Other details were generally good for near-term growth in manufacturing. Customers’ inventories are too low and prices are rising, both indicating stronger demand. In addition export orders and the backlog of orders both rose over the month.
Of the eighteen industries covered, fifteen reported expansion in October. Five of the six biggest manufacturing industries reported strong growth: fabricated metals; food, beverages and tobacco; chemicals; computers and electronics; and transportation equipment. Only two industries indicated contraction over the month, textile mills and printing.
After contracting in March, April and May because of the pandemic, manufacturing has expanded for four straight months, according to the ISM index. With consumers spending thanks to federal stimulus efforts and job growth, and the housing market improving with record-low mortgage rates, manufacturing is recovering. But the industry still has a long way to go to get back to its pre-pandemic level, according to the Federal Reserve’s industrial production index. Manufacturing rebounded strongly with fewer restrictions on economic activity and stimulus efforts, but the path forward will be more difficult as the economy continues to cope with the pandemic. An inability of Congress to pass further fiscal stimulus is a significant downside risk for the industry.
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