in October
- The manufacturing ISM survey came in at 60.8 in October, down marginally from 61.1 in September. A reading above 50 indicates expansion. Manufacturing is expanding, but the pace of gains is unable to accelerate due to supply constraints.
- The Employment, Deliveries, and Commodity Prices component indices all rose over the month prior.
- The Manufacturing ISM survey’s New Orders component fell sharply in October, perhaps reflecting resignation to persistent supply constraints and new inventory management realities.
- The Imports Index component of the Manufacturing ISM survey fell to 49.1 – its lowest reading since June 2020.
The ISM (Institute for Supply Management) manufacturing index fell from September into October, from 61.1 to 60.8 This continues a trend of minimal volatility around an index level of 60 that has been in place since April; the index has waffled in a range between 59.5 and 61.2 over that time. Expansion in manufacturing continues, as the survey’s reading is still well above 50 which indicates that more manufacturers are signaling expansion than are experiencing a contractionary environment. But supply chain constrains across all input requirements prevents the sector from accelerating growth to meet evident demand. The debate over strong consumer price rises reflects the new reality that manufacturers are simply unable to ramp up production, and that heightened demand will therefore be chasing limited supply for the foreseeable future.
Job creation in manufacturing rose to 52.0 in October from 50.2 in September, scoring a slight victory as the sector battles through the same labor shortages that the national economy is enduring. Again, the Employment component index has bounced within a tight range since mid-year. The Employment component, however, has struggled to remain in expansionary territory (i.e., > 50.0) whereas the overall index has been consistently expansionary throughout 2021. Indications are that wage growth is stepping up in the face of labor market supply limitations, which should offer some support to push manufacturing hiring out of its recent holding pattern and into a consistent upward trend.
ISM manufacturing survey responses regarding Commodity Prices jumped to 85.7 in October. Though not as high as the record result of 92.1 posted in June 2021, the reading in the mid-80s suggests that manufacturers will continue to act as a pass-through route for inflation to remain elevated. While supply chain issues will compound inflation concerns by allowing a limited supply of goods to fetch higher prices, manufacturers themselves are clearly paying more for the inputs needed to generate even their subdued production levels, and these costs will invariably be passed on to consumers.
The New Orders component of the ISM manufacturing survey fell sharply in October to 59.8, from 66.7. The result is still solidly expansionary (i.e., > 50.0), but it is the first monthly result below 60.0 since June 2020. Only the January 2021 survey result for New Orders, at 61.1, was close to this threshold. One interpretation of this dramatic fall could be manufacturers facing a shifting paradigm that accepts supply constraints as a new reality. Demand does not appear to be abating, raising the question of whether businesses’ patience and profitability potential is becoming exhausted and that new inventory management techniques and the promise of fewer goods on offer could be emerging. This is only one possibility as the economy struggles through this ongoing shift in production capacity and labor evolution, but the sharp disconnect between strong demand and New Orders – especially given that the holiday shopping season is on the doorstep – provides enough reason to begin considering unconventional theories.
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