October manufacturing output hits highest level in more than a year, reports ISM

October manufacturing output turned in collectively strong numbers, according to data issued earlier today by the Institute for Supply Management (ISM).

In its monthly Manufacturing Report on Business, ISM said that the report’s key metric, the PMI, hit 59.3 (a reading of 50 or higher indicates growth), which topped September’s 55.4 by 3.9%, while growing at a faster rate for the fifth consecutive month, while the overall economy grew for the sixth consecutive month.

What’s more, this represents the highest PMI reading going back to September 2018’s 59.3. And the October reading is 8.6% above the 12-month PMI average, of 50.7, with October marking the highest reading over that period.

ISM reported that 15 of the 18 manufacturing sectors it tracks saw growth in October, including: Apparel, Leather & Allied Products; Fabricated Metal Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Machinery; Furniture & Related Products; Paper Products; Wood Products; Chemical Products; Primary Metals; Computer & Electronic Products; Transportation Equipment; Electrical Equipment, Appliances & Components; and Miscellaneous Manufacturing. The two sectors reporting contraction in October are: Textile Mills; and Printing & Related Support Activities.

The report’s key metrics saw across the board gains in October.

New orders, which are commonly referred to as the engine that drives manufacturing, came in at 67.9, which was up 7.7% over September’s 60.4, and up for the fifth consecutive month. This reading is the category’s highest, for any month, going back to January 2004’s 70.6, and with the exception of June 2020, the 7.7% October increase is the largest one going back to March 2009, when it jumped 8.6%.

Production—at 63—was up 2% compared to September, rising for the fifth straight month and topping the 60 mark for the fourth straight month, with five of the top manufacturing sectors showing growth. And employment—at 53.2—headed up 3.6%, showing growth following 14 months of contraction.

Supplier deliveries—at 60.5 (a reading above 50 indicates contraction)—slowed from September to October, while slowing at a faster rate for the 12th consecutive month, with the report observing that suppliers continue to struggle with deliveries and also citing transportation challenges and continuing challenges in supplier labor markets still constraining production growth.  And the report also pointed out that this reading highlights difficulties suppliers are still dealing with because of COVID-19 impacts related to expanding new orders and production. And inventories—at 51.9—saw a 4.8% increase, showing growth after contracting for the previous three months.

A theme of cautious optimism was expressed across comments, in the report, from ISM member respondents.

“Continue to see increases in customer demand. We still are not back to pre-COVID-19 levels but are continually improving,” said a Fabricated Metal Products respondent. And a miscellaneous manufacturing respondent noted that business levels have just about returned to pre-COVID-19 levels, with the respondent’s company remaining conservative with fixed-cost spending, knowing the uncertainties that lie ahead with COVID-19 and its potential impact globally.

Tim Fiore, Chair of the ISM’s Manufacturing Business Survey Committee, said in an interview that there were multiple factors driving the report’s solid results.

“The new orders number was very strong, and inventories are climbing up positively, too, which shows that people are optimistic and stocking up for the future,” he said. 

Addressing October pricing, which rose 2.7%, to 65.5, and growing for the fifth straight month, Fiore said that number reflects an overhang from Hurricane Season, which was made clear by plastics up in price, coupled with destocking for chemicals and resins, which left suppliers somewhat flat-footed, he said.

Looking ahead, he said there is a possibility that the new orders number range could moderate, given how, in recent months, it has gone from strong to too low to too high.

“Hopefully, it can stabilize from the low 60s to the high 50s,” he said.

As evidenced by the October supplier deliveries reading, Fiore reiterated that transportation concerns, in the form of transportation delivery and supply chain issues, remain.

“That is not something that is going away, as long as demand stays up,” he said.

What’s more, with import growth remaining strong, due to imports from both overseas and Mexico, Fiore said it stands to reason that expansion will occur over the course of the fourth quarter.

And, addressing tomorrow’s election, Fiore said it is reasonable to expect an uptick in capital expenditure investment, regardless of the outcome.

“If the Democrats win and end up controlling the House and Senate, there could be a new infrastructure bill,” he said. “If Trump gets re-elected, we may see another tax cut, or a retention of individual tax cuts, which was set to expire in 2021. Either way, these are things both parties will approve of.”