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First Cut: October ISM Manufacturing Index shows factory sector in contraction for a third month and trade gets the blame

The ISM Manufacturing Index for October managed to rise slightly while remaining in contraction for a third month. All components remained sub-50 even as a few were a bit firmer for the month. Respondents to the ISM survey broadly attributed the continued slowness to global trade conditions. Caution remained the watchword for manufacturing at the start of the fourth quarter 2019. While conditions haven’t improved, neither do they seem to have worsened. The factory sector is treading water.

The index for new orders did manage to rise to 49.1 in October from 47.3 in September. The ISM report noted that orders got an assist from an increase in export orders which staged a rebound to 50.4 in October from 41.0 in September when it was the lowest since early 2009. Nonetheless, order backlogs contracted further to 44.1 in October from 45.1 in September.  Slower orders and fewer backlogs mean declining production. The production index fell to 46.2 in October from 47.3 in the prior month and hasn’t seen a string of below 50 readings like this since late 2015-early 2016.

The employment index remained below 50 for a third month in a row at 47.7 in October after 46.3 in September and hasn’t been this low sine the summer 2016.

Supplier delivery times hovered around neutral where they have been for most of the past six months. The index slipped to 49.5 in October  from 51.1 in September. The supply chain does not appearing to have an obstructions or be too quick for comfort. Import orders were down to 45.3 after 48.1 in the prior month.

Inventories continued in contraction for a fifth month in October. The index has been little changed of late as manufacturers carefully stock and restock. the index was up to 48.9 for the month after 46.9 in September and 49.9 in August, and are coming in at the slowest pace in over 10 years.

Upward pressure on input costs has been low for 2018 to-date. The October prices paid index fell to 45.5 after 49.7 in September when energy costs got a short-lived boost after the attack on Saudi oil production. Inflationary pressures from manufacturing are largely absent.

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