Weaker PMI Still Shows Growth, But Not by Much

Economic activity in the manufacturing sector expanded again in October, but the PMI declined by 0.8 percent from September, to a reading of 50.8 percent, reports the Institute for Supply Management, Tempe, Ariz., in its latest Manufacturing ISM Report on Business. A reading over 50 percent indicates growth.

“Comments from respondents were mixed, indicating positive relief from raw materials pricing and continuing strength in a few industries, but there is also more concern and caution about growth in this uncertain economy,” said Bradley J. Holcomb, chairman of ISM’s survey committee.

A PMI in excess of 42.5 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the 29th consecutive month in the overall economy, as well as expansion in the manufacturing sector for the 27th consecutive month.

“The past relationship between the PMI and the overall economy indicates that the average PMI for January through October (55.7 percent) corresponds to a 4.6 percent increase in real gross domestic product. In addition, if the PMI for October is annualized, it corresponds to a 2.9 percent increase in real GDP annually,” Holcomb said.

ISM’s New Orders Index increased 2.8 percentage points from September to 52.4 percent, indicating a return to growth after three months of contraction. The Prices Index, at 41 percent, dropped 15 percentage points, and is below the 50 percent mark for the first time since May 2009. Inventories decreased to 46.7 percent, which is 5.3 percentage points below the September reading of 52 percent.

Of the 18 manufacturing industries, eight reported growth in October, including computers and electronics, primary metals, fabricated metal products and machinery.