In some welcome good news for what had been a slowly firming economy, the Institute for Supply Management, the Tempe Arizona-based trade group, reported that its survey on manufacturing activity had inched forward in October, rising to a reading of 51.7. That was up from the September result of 51.5. It should be noted that a survey gauge above 50 signals that the nation's industrial sector is expanding. This was the second month in succession that this survey had shown improvement after having backtracked (i.e., scoring below 50) over the summer. Expectations had been for a slightly slower rate of growth, on the order of 51.2.
The improvement was largely fueled by a further pickup in new orders, one of the survey's individual components. New orders, in fact, climbed from 52.3 to 54.2. (All comparisons are on a month-to-month basis.) On the other hand, employment grew less briskly, easing from 54.7 to 52.1. Prices paid also increased more slowly, but that was a positive development. The overall index and the new orders index were the highest since May, and suggest that going into this week, before the major damages ensuing from Hurricane Sandy, the business expansion looked to be picking up a little speed. Now, unfortunately, that will not be the case.
Our sense is that the fourth quarter will be hurt severely by Hurricane Sandy. So, instead of rising by perhaps 2%, or in line with the gain in the third quarter, GDP may gain just 1.2% to 1.5%. That toll from Sandy, moreover, could well be felt in this survey for November, which will be issued on Monday, December 3rd. As for the current report, our feeling is that it was a positive one and suggests that as the impact from the hurricane gradually lessens and rebuilding takes hold, that manufacturing should be a noted beneficiary.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.