Shutting down the federal government for the first half of the month apparently had very little impact on manufacturing as the sector expanded at its fastest pace in years, according to the Institute for Supply Management (ISM).
Factory activity increased to 56.4 in October in ISM’s manufacturing index. The figures, released Friday, exceeded expectations of a slower growth rate.
October marked the fifth consecutive month of expansion in the manufacturing sector as measured by ISM. A reading above 50 percent signals an expanding economy; below 50 percent indicates a contraction.
Manufacturing’s expansion last month represents an increase of 0.2 of a percentage point above September’s reading.
Demand for U.S. exports, which has been trending upward for the past 11 months, and a robust domestic auto market seems to have bolstered the manufacturing sector.
Of the 18 manufacturing industries assessed in the report, 14 reported growth last month. The greatest expansion was recorded by textile mills; food, beverage and tobacco products; transportation equipment; and petroleum and coal products.
Four industries reported contraction last month: apparel, leather and allied products; primary metals; chemical products; and miscellaneous manufacturing.
The ISM survey panel said factory representatives gave mixed responses on whether the 16-day government shutdown had any effect on their businesses. But the panel was generally upbeat about the current business climate.
“We’ve become accustomed to the way Washington operate in the past couple of years and assume that it will get resolved eventually, however painfully,” Bradley Holcomb, head of the ISM survey committee, told The Associated Press.
The new orders index rose slightly last month by 0.1 of a percentage point to 60.6 percent, while the production index decrease by 1.8 percentage points to 60.8 percent. Still, the indexes for new orders and production have registered above 60 percent for three consecutive months.
The employment index registered 53.2 percent last month, a decrease of 2.2 percentage points from September. The reading shows expansion in employment for the fourth consecutive month, but at a slower rate that in September, the ISM reported.
New export orders registered 57 percent last month, 5 percentage points higher that September. The reading reflects the highest level of export demand since April 2012.
Final Markit PMI Barely Edges Up
Despite the rosier picture presented by the ISM index, the final reading of Markit’s U.S. manufacturing purchasing managers’ index (PMI) remained dismal. The final figure increased to 51.8 in October from an initial “flash” reading of 51.1. The number is still below September’s reading of 52.8. Any number above 50 signals expansion.
The report shows only modest improvement in conditions. Yet the pace of new orders improved at the slowest pace since April.
The Markit subindexes were mixed this month compared to final September readings. The output index plunged to 49.5 from 55.3. The new orders index slipped to 52.7 from 53.2, but the exports index edged up to 51.3 from 49.0. The employment index improved to 52.7 from 51.3. The input price index increased to 57.7 from 55.7.
“While better than the earlier flash reading, the final PMI data indicate that the U.S. manufacturing sector ground to a near standstill in October,” said Chris Williamson, chief economist at Markit. “Encouragingly, it looks like companies are expecting the slowdown to be temporary, most likely linked to the government shutdown, as indicated by an upturn in the rate of job creation.”
U.S. Auto Sales Spike Despite Shutdown
Most automakers reported sales gains in October despite the 16-day government shutdown, meeting analyst predictions of double-digit percentage sales increases.
U.S. General Motor’s sales jumped nearly 16 percent, while Ford Motor Co. and Chrysler LLC also reported gains, at 14 and 11 percent, respectively. Japanese manufacturers also saw a boost in sales, with Nissan reporting a 14 percent increase last month, followed by Toyota, at almost 9 percent, and Honda, up 7 percent. Meanwhile, Kia sales slipped by 6 percent, and Volkswagon (10 percent) and Volvo (almost 7 percent) also saw a drop in sales.
Autodata’s Motor Intelligence reported that the annual selling rate for October was 15.2 million vehicles, slightly lower that the analyst forecast, but better than the 14.4 million gain reported in October 2012. Pre-recession, automakers reported sales at 16 million in 2007.
Although the looming fiscal cliff poses a threat to sales, the government shutdown did not have a significant effect on last month’s auto sales, partially due to low interest rates and lower gas prices at the end of October, analysts said.
“The expectations were that car buyers would wait on the sidelines, but because of pent-up demand and credit availability, car sales are expected to increase 7 percent from last month,” Alec Gutierrez of Kelley Blue Book told Reuters ahead of the reported gains.
Average transaction prices for light vehicles in the U.S. also rose by $312 or 1 percent since last October, at $30,798 per vehicle, TrueCar, Inc. reported.
Jobless Claims Continue to Fall
The Labor Department announced another drop in initial jobless claims as California cleared the backlog stemming from computer problems several weeks ago.
First-time applications decreased by 10,000 to 340,000 in the week ending Oct. 26. However, the four-week average rose 8,000 to 356,250, the highest since April. The average is still inflated by the prior backlogs in California, as well as layoffs resulting from the 16-day partial government shutdown.
The new figure for jobless claims is close to pre-recession levels. However, it is not matched by business hiring, which once again was below expectations.
Payroll processor ADP revealed that business hiring slowed this month, adding just 130,000 net new jobs. Economists had modestly predicted 138,000. Low hiring could be the result of the partial shutdown hitting an already weakening labor market.
The hiring report was undoubtedly a contributor to the Federal Reserve’s decision to continue it $85-billion-per-month bond-buying stimulus program.
