October ISM Manufacturing, September Construction Spending

Orders Support Manufacturing, But Other Pillars Weaker

  • The September ISM Manufacturing Index decreased to 50.8 percent as production barely expanded.
  • Construction Spending for September increased by 0.2 percent with gains in private residential.

The ISM Manufacturing Index slipped to 50.8 percent in October, remaining above the neutral 50.0 mark, but not by much. Of the ten series that drive the headline index, 8 slipped in October, but the 2 relating to orders increased and that is a bit of positive news looking forward. The new orders index climbed to 52.4 and the backlog of orders index was less bad than last month, climbing to 47.5. The production index for October just missed stalling for the month, dipping to 50.1. The employment index slipped a little to a still-positive 53.4, good news for Friday’s payroll jobs report. Inventories were a drag, as were prices.  Normally, the headline manufacturing index can fall below 50, to about 45, and the U.S. economy can remain in expansion, as long as the non-manufacturing sector is chugging along. However, in this hobbled expansion, manufacturing has for the last 2 years, been a bright spot. Now, with overall manufacturing conditions close to stalling, we need to see some improvement in order to feel confident about ongoing expansion for year-end 2011. This is where the orders numbers come in. Improving orders suggest that the overall index will tend to improve in the months ahead. Of 18 reporting industries, 8 reported growth in October, including computers and electronics, petroleum and coal, food and beverages, and nonmetallic minerals. Six industries reported contraction, including plastics and rubber, chemicals, apparel and printing. Anecdotal comments were mixed, but one in particular is encouraging, “auto industry still strong”.

Construction spending nudged up by 0.2 percent in September according to the Census Bureau. Private residential construction gained 0.9 percent, consistent with the gain in housing starts seen for the month. Private nonresidential construction increased by 0.3 percent, boosted by healthcare, transportation and lodging projects. Total public construction eased by 0.6 percent, consistent with the wind down of fiscal stimulus spending.

Market Reaction: U.S. equities markets opened with losses with increasing uncertainty about Greece. Treasury yields are down. Oil is down to $90.59/barrel. The dollar is up against the yen and the euro.

ISM-MF and ISM-Nonmf Indexes

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