Rises in New Orders and Production Boosted US Manufacturing

ISM manufacturing fell by 0.1 points to 50.1 in October

The manufacturing sector accounts for one-tenth of the US economy. According to the Institute for Supply Management (or ISM), the manufacturing PMI (purchasing managers’ index) stood at 50.1 in October 2015. This was a fall of 0.1 points from September’s reading of 50.2.

However, new orders and production are growing faster, with pickups in printing, textiles, furniture, and food products. Manufacturers remain cautious about hiring. The Industrial Select Sector SPDR ETF (XLI) and the SPDR Dow Jones Industrial Average ETF (DIA) have gained 1.2% and 0.9%, respectively, as of November 2, 2015.

Rises in New Orders and Production Boosted US Manufacturing

Markit US PMI rises by 1.0 points to 54.1 in October

While ISM manufacturing has fallen, the Markit US PMI stood at 54.1 in October 2015, a rise of 1.0 points against 53.1 in September. This highlights a sharp rise in new orders, production, and employment levels.

Stocks such as Emerson Electric (EMR), Expeditors International of Washington (EXPD), Entergy (ETR), and Rockwell Automation (ROK) have gained 2.4%, 2.0%, 0.57%, and 1.3%, respectively, as of November 2, 2015.

Rises in New Orders and Production Boosted US Manufacturing

Export orders record modest growth in October

Despite the US dollar’s strengthening, export orders saw a modest rise in October as manufacturers adapted. Though new orders picked up in October, manufacturers were cautious about holding stock of finished goods.

However, an increase in raw material inventories was seen in October. With the festive season ahead, companies expect demand to rise going forward.

Though ISM and Markit indicate divergent views on manufacturing, rises in new orders and production may provide a head start to the manufacturing sector.

An improvement in production may increase the odds of policymakers’ voting to hike rates at the FOMC’s (Federal Open Market Committee) December meeting.

The US economy has shown a high inclination toward the service sector in terms of overall growth. However, manufacturing pickup in October is a good signal that the economy will continue to grow at levels near 3.0%.

However, inflationary pressure remaining low may slow down the pace of growth. Let’s see how manufacturing is shaping up in the Eurozone in the next article.