October 2014 ISM Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that economic activity in the U.S. manufacturing sector recovered in October the ground lost in September. The PMI jumped back to 59.0 percent, an increase of 2.4 percentage points from September’s 56.6 percent (50 percent is the breakpoint between contraction and expansion). ISM’s manufacturing survey represents under 10 percent of U.S. employment and about 20 percent of the overall economy. The pickup in activity was primarily supported by increased new and backlogged orders, and slower supplier deliveries (implying suppliers may be having difficulty keeping up with orders).

Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee said comments from the respondent panel “generally cite positive business conditions, with growth in demand and production volumes.”

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Wood Products was unchanged in October, as increased production was offset by declines in new and backlogged orders; “production is oversupplying demand,” one respondent indicated, “and prices have softened.” Paper Products’ expansion, by contrast, exhibited wide-spread support among the sub-indices. 

The pace of growth in the non-manufacturing sector -- which accounts for 80 percent of the economy and 90 percent of employment -- retreated again in October. The NMI registered 57.1 percent, 1.5 percentage points lower than September’s 58.6 percent; only the employment and imports sub-indices were higher in October than September. “The majority of the respondents’ comments reflect favorable business conditions,” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee; “however, there is an indication that there continues to be a leveling off from the strong rate of growth of the preceding months.” 

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All three service industries we track reported expansion in October, although Ag & Forestry’s support among the sub-indices was not that meaningful.

Commodities up in price included envelopes and paper products. Some respondents indicated paying more for fuel, others less. Lumber was the only relevant commodity down in price. No relevant commodities were in short supply.

It is interesting to note that while ISM’s NMI and Markit’s U.S. Services PMI paralleled each other in October (i.e., growth slowed), ISM’s PMI and Markit’s U.S. Manufacturing PMI moved in opposite directions (i.e., ISM increased while Markit decreased). Time will tell which organization’s assessment of U.S. manufacturing is more accurate.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.