A closely watched gauge of U.S. manufacturing activity signaled healthy growth in October even as it retreated from its highest level in 13 years.
The Institute for Supply Management on Wednesday said its manufacturing index fell to 58.7 in October from September’s 60.8, which was the strongest month since May 2004. A reading above 50 indicates activity is expanding across the factory sector, while a number below 50 signals contraction. Economists surveyed by The Wall Street Journal had expected an October reading of 59.0.
Despite the pullback from September, no “serious weakening in the trend” is expected ahead, Pantheon Macroeconomics Chief Economist Ian Shepherdson said in a note to clients. “Global demand is strong, the dollar is competitive and domestic spending on capital equipment is rising rapidly.”
Several late-summer hurricanes likely continue to skew the data, but the broader trend suggests solid growth in factory activity. “It’s still a very strong year,” said Timothy Fiore, who oversees the ISM survey.
The details of Wednesday’s report showed a retreat across many components, though most remained in positive territory.
The new-orders index fell to 63.4 in October and the production index was down to 61.0. The employment index decreased to 59.8 last month. The index tracking new export orders fell to 56.5 in October.
The prices index, tracking raw-material costs, declined to a still-high 68.5 last month. Inflation has been subdued this year, though a hurricane-fueled spike in gasoline prices pushed up broad price gauges in recent months.
Among 18 industries tracked in Wednesday’s report, 16 reported growth during October, led by paper products, while two industries reported no change from September.
The overall U.S. economy has expanded at a healthy pace in recent months, bolstered by consumer and business spending.
Gross domestic product, a broad measure of goods and services produced across the U.S., expanded at a seasonally and inflation adjusted rate of 3.0% in the third quarter after notching a 3.1% growth rate in the second quarter, the Commerce Department said. That was the strongest six-month stretch for growth in three years.
Manufacturing accounts for only about 12% of the nation’s economic output, but it is closely watched for signals about the broader economy. The factory sector has gained strength since last year as oil prices stabilized and a pickup in global growth bolstered demand for U.S. exports.
Hurricanes Harvey and Irma battered parts of the southern U.S. in late summer, temporarily disrupting some industrial activity including refinery operations along the Gulf Coast. National manufacturing production ticked up 0.1% in September after falling in July and August, according to Federal Reserve data.
Source: Dow Jones