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Data Show Consecutive Months of Manufacturing Expansion

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Economic activity in the manufacturing sector expanded in October for the second consecutive month following three months of slight contraction, and the overall economy grew for the 41st consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee. "The PMI registered 51.7 percent, an increase of 0.2 percentage point from September's reading of 51.5 percent, indicating growth in manufacturing at a slightly faster rate. The New Orders Index registered 54.2 percent, an increase of 1.9 percentage points from September, indicating growth in new orders for the second consecutive month. The Production Index registered 52.4 percent, an increase of 2.9 percentage points, indicating growth in production following two months of contraction. The Employment Index registered 52.1 percent, a decrease of 2.6 percentage points, and the Prices Index registered 55 percent, reflecting a decrease of 3 percentage points. Comments from the panel this month reflect continued concern over a fragile global economy and soft orders across several manufacturing sectors."

Performance by Industry Of the 18 manufacturing industries, eight are reporting growth in October in the following order: Petroleum & Coal Products; Furniture & Related Products; Apparel, Leather & Allied Products; Paper Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Plastics & Rubber Products; and Chemical Products. The eight industries reporting contraction in October -- listed in order -- are: Primary Metals; Wood Products; Machinery; Fabricated Metal Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Computer & Electronic Products; and Nonmetallic Mineral Products.

What Economists are Saying:

-- "Market is still very soft." (Paper Products)

-- "Business is picking up." (Furniture & Related Products)

-- "[Our] 4th quarters usually begin to show a slowdown in demand, and this year is no different; prices are also dropping." (Wood Products)

-- "Demand down slightly due to customers pre-buying ahead of announced material price increases." (Plastics & Rubber Products)

-- "The slowing of capital expenditure in Europe and China has lowered our backlog for Q4." (Computer & Electronic Products)

-- "We see a general softening in the steel and automotive markets in the fourth quarter." (Fabricated Metal Products)

-- "Cuts in healthcare reimbursement rates continue to negatively affect top-line revenue." (Miscellaneous Manufacturing)

-- "Business conditions stable to slightly improving." (Transportation Equipment)

-- "Sales and order intake have slowed." (Primary Metals)

-- "Europe is still very much a concern. Global recovery is still fragile." (Chemical Products)

Manufacturing Expanded

Manufacturing expanded in October as the PMI registered 51.7 percent, an increase of 0.2 percentage point when compared to September's reading of 51.5 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 42.6 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the October PMI indicates growth for the 41st consecutive month in the overall economy, and indicates growth in the manufacturing sector for the second consecutive month following three consecutive months of slight contraction. Holcomb stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through October (52 percent) corresponds to a 3.2 percent increase in real gross domestic product (GDP). In addition, if the PMI for October (51.7 percent) is annualized, it corresponds to a 3.1 percent increase in real GDP annually."

New Orders ISM's New Orders Index registered 54.2 percent in October, which is an increase of 1.9 percentage points when compared to the September reading of 52.3 percent. This represents the second consecutive month of growth in new orders following three consecutive months of contraction. A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

The five industries reporting growth in new orders in October are: Furniture & Related Products; Food, Beverage & Tobacco Products; Paper Products; Computer & Electronic Products; and Miscellaneous Manufacturing. The eight industries reporting a decrease in new orders during October -- listed in order -- are: Primary Metals; Wood Products; Machinery; Electrical Equipment, Appliances & Components; Transportation Equipment; Chemical Products; Nonmetallic Mineral Products; and Apparel, Leather & Allied Products. ISM's Production Index registered 52.4 percent in October, which is an increase of 2.9 percentage points when compared to the 49.5 percent reported in September. This indicates a return to growth in production following two consecutive months of contraction. An index above 51.2 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

The six industries reporting growth in production during the month of October -- listed in order -- are: Furniture & Related Products; Apparel, Leather & Allied Products; Paper Products; Petroleum & Coal Products; Computer & Electronic Products; and Miscellaneous Manufacturing. The seven industries reporting a decrease in production in October -- listed in order -- are: Primary Metals; Machinery; Wood Products; Plastics & Rubber Products; Transportation Equipment; Food, Beverage & Tobacco Products; and Nonmetallic Mineral Products.

Employment ISM's Employment Index registered 52.1 percent in October, which is 2.6 percentage points lower than the 54.7 percent reported in September. This is the 37th consecutive month of growth in the Employment Index. An Employment Index above 50.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, eight reported growth in employment in October in the following order: Apparel, Leather & Allied Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Paper Products; Miscellaneous Manufacturing; Chemical Products; Transportation Equipment; and Primary Metals. The six industries reporting a decrease in employment in October -- listed in order -- are: Nonmetallic Mineral Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Computer & Electronic Products; and Wood Products.

Employment %Higher %Same %Lower Net Index

Oct 2012 24 55 21 +3 52.1

Sep 2012 23 59 18 +5 54.7

Aug 2012 19 65 16 +3 51.6

Jul 2012 20 65 15 +5 52.0

Supplier Deliveries The delivery performance of suppliers to manufacturing organizations was faster in October as the Supplier Deliveries Index registered 49.6 percent, which is 0.7 percentage point lower than the 50.3 percent reported in September. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The four industries reporting slower supplier deliveries in October are: Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Chemical Products; and Transportation Equipment. The eight industries reporting faster supplier deliveries in October -- listed in order -- are: Wood Products; Apparel, Leather & Allied Products; Machinery; Computer & Electronic Products; Primary Metals; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Miscellaneous Manufacturing. Six industries reported no change in supplier deliveries in October compared to September.

Inventories* The Inventories Index registered 50 percent in October, which is 0.5 percentage point lower than the 50.5 percent reported in September. This month's reading indicates that respondents are reporting inventories are unchanged from September. An Inventories Index greater than 42.8 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The seven industries reporting higher inventories in October -- listed in order -- are: Plastics & Rubber Products; Nonmetallic Mineral Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Chemical Products; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components. The five industries reporting decreases in inventories in October are: Fabricated Metal Products; Computer & Electronic Products; Primary Metals; Transportation Equipment; and Apparel, Leather & Allied Products. Six industries reported no change in inventories in October compared to September.

Inventories %Higher %Same %Lower Net Index

Oct 2012 21 58 21 0 50.0

Sep 2012 20 61 19 +1 50.5

Aug 2012 24 58 18 +6 53.0

Jul 2012 21 56 23 -2 49.0

Customers' Inventories* The ISM Customers' Inventories Index registered 49 percent in October, which is 0.5 percentage point lower than in September when the index registered 49.5 percent. Customers' inventories have registered at or below 50 percent for 43 consecutive months. A reading below 50 percent indicates customers' inventories are considered too low.

The six manufacturing industries reporting customers' inventories as being too high during October -- listed in order -- are: Primary Metals; Nonmetallic Mineral Products; Apparel, Leather & Allied Products; Plastics & Rubber Products; Chemical Products; and Fabricated Metal Products. The six industries reporting customers' inventories as too low during October -- listed in order -- are: Wood Products; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Transportation Equipment; and Machinery.

Prices* The ISM Prices Index registered 55 percent in October, which is a decrease of 3 percentage points compared to the September reading of 58 percent. In October, 23 percent of respondents reported paying higher prices, 13 percent reported paying lower prices, and 64 percent of supply executives reported paying the same prices as in September. A Prices Index above 49.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

Of the 18 manufacturing industries, eight reported paying increased prices during the month of October in the following order: Furniture & Related Products; Food, Beverage & Tobacco Products; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Chemical Products; and Transportation Equipment. The four industries reporting paying lower prices during October are: Primary Metals; Machinery; Computer & Electronic Products; and Petroleum & Coal Products.

Backlog of Orders* ISM's Backlog of Orders Index registered 41.5 percent in October, which is 2.5 percentage points lower than the 44 percent reported in September. This is the seventh consecutive month of contraction in order backlogs. Of the 86 percent of respondents who reported their backlog of orders, 14 percent reported greater backlogs, 31 percent reported smaller backlogs, and 55 percent reported no change from September.

The two industries reporting increased order backlogs in October are: Apparel, Leather & Allied Products; and Furniture & Related Products. The 12 industries reporting decreases in order backlogs during October -- listed in order -- are: Machinery; Plastics & Rubber Products; Transportation Equipment; Miscellaneous Manufacturing; Primary Metals; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Paper Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Chemical Products; and Wood Products. ISM's New Export Orders Index registered 48 percent in October, which is 0.5 percentage point lower than the 48.5 percent reported in September. This month's reading represents the fifth month of contraction in the index since June 2009, when the index registered 49.5 percent. Prior to this current five-month period of contraction, the New Export Orders Index had registered 50 percent or above for the previous 35 consecutive months. Export Orders*

The five industries reporting growth in new export orders in October are: Wood Products; Nonmetallic Mineral Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; and Computer & Electronic Products. The eight industries reporting a decrease in new export orders during October -- listed in order -- are: Transportation Equipment; Chemical Products; Primary Metals; Electrical Equipment, Appliances & Components; Machinery; Miscellaneous Manufacturing; Paper Products; and Apparel, Leather & Allied Products. Use of the data is in the public domain and should be compared to all other economic data sources when used in decision-making.

Data and Method of Presentation The Manufacturing ISM Report On Business((R)) is based on data compiled from purchasing and supply executives nationwide. Membership of the Manufacturing Business Survey Committee is diversified by NAICS, based on each industry's contribution to gross domestic product (GDP). Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Food, Beverage & Tobacco Products; Textile Mills; Apparel, Leather & Allied Products; Wood Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).


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