Tuesday, November 3, 2009

ISM Manufacturing Report Shows Continued Growth

Many major indices went up in October, but one ISM analyst says they may drop slightly as part of the overall growth process
Many of the manufacturing indices measured by the Institute for Supply Management (ISM) went up in October, some to unusually high levels, but don't expect them to stay that way, according to one analyst.

Norbert Ore, chair of ISM's Manufacturing Business Survey Committee, said today that new orders, production and employment all grew sharply, along with ISM's PMI, the index the institute uses to measure the manufacturing sector as a whole. However, Ore said those numbers may be a bit too high, and will likely drop a few points next month in what he called "a leveling off" on the economy's course toward recovery.

"This is not a robust economy," he said.

The PMI rose 3.1 percentage points to 55.7 percent in October vs. September's numbers. Any value over 50 percent, for most of ISM's indices, indicates growth. Ore said the PMI hasn't been this high since a 56 percent level recorded in April 2006.

A main part of that jump, Ore said, comes from upward leaps in both production, which went up 7.6 points to 63.5 percent, and employment which rose 6.9 points to 53.1 percent, the first time that index has broken the 50 percent barrier in months.

"Employment was a surprise," Ore said.

So much so, that Ore said he did not expect it will stay that high in November, nor will production or the PMI in general.

In particular, Ore noted that most of the increase in employment was due to the hiring of temps and "callbacks," or bringing back laid-off workers. While Ore did not have a breakdown of each, he speculated that true growth in employment figures-typically measured by an index value of 55 percent or more-could not be built on temp and callback hiring alone.

"It's got a little ways to go yet, and I'm going to be surprised if it stays above 50," Ore said.
Ore also cited a continued lack of consumer confidence, as well as oil prices "quietly" hitting $80 per barrel last week, as factors that will contribute to a fallback in numbers in November.

"An increase in oil prices is a tax on growth," he said.

Ore also noted a disparity in the Customers' Inventories index-which dropped slightly to 38.5 percent in October-and the Inventories index, which rose 4.4 points to 46.9 percent.

"The customer inventories [index] shows there are some major gaps in the supply chain," he said.

Ore said there were a multitude of factors responsible for the gaps, but ultimately, the coming months should show the gap shrinking.

"It's just an inconvenience more than anything else," he said.
This article was found in Logistics Management. For a link to their site, click here.

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