Yesterday, the Institute of Supply Management (ISM) released the latest report on manufacturing for October. The Purchasing Managers' Index (PMI) gained 0.2 points from September and registered in at 51.7.
The following is the monthly track of the PMI since the January 2000.
The gains in the October PMI were primarily due to an improvement in both the production and new orders indexes. The gains in these measures offset declines in the employment component, the suppliers deliveries index, and a lower inventories measurement.
I continue to believe, despite the gains over the last two months, the operating environment remains weak. The production index gained 2.9 points in October, registering in at 52.4. The October production measure suggests that manufacturing production rates increased in October. However, some of these gains were borrowed from backlogs. Backlogs in October declined 2.5 points to 41.5. Although not the lowest reading, the October backlog is still fairly low by historical standards.
Historical Backlog figures since 2000
A low backlog, in of itself, is not necessarily a warning signal, as new orders is an important component to production and the PMI. Not that you really need supporting evidence to see this, but the following is a graph of the summation of the monthly change in new orders and backlogs tracked against production.
I did not run any statistics on the data, but the visual comparison provides a fairly compelling case of the importance of new orders and backlogs to production.
Turning to new orders, the index ticked up 1.9 points in October and settled in at 54.2. The reading is consistent with decent order intake in October. Looking ahead however, the customer inventories index is suggesting a better than average probability that new orders declines in future periods. I have detailed this analysis in prior posts, but as a brief refresh, the customer inventories index is a measure of the inventories levels that purchasing managers are seeing at their customers. This measure typically moves inverse with new orders. In addition, the customer inventories index, when at extremes, can provide indications of future new orders, i.e. a very low(high) measures suggests future growth(decline) in new orders.
The latest customer inventories index came in at 49, a 0.5 point improvement from the 49.5 in September. Despite the improvement, the customer inventories index remains high by historical standards (noting the average of the measure since inception has been around 45). A high reading suggests a better than average chance of declining new orders over the next six months.
The following is the monthly track of the PMI since the January 2000.
The gains in the October PMI were primarily due to an improvement in both the production and new orders indexes. The gains in these measures offset declines in the employment component, the suppliers deliveries index, and a lower inventories measurement.
I continue to believe, despite the gains over the last two months, the operating environment remains weak. The production index gained 2.9 points in October, registering in at 52.4. The October production measure suggests that manufacturing production rates increased in October. However, some of these gains were borrowed from backlogs. Backlogs in October declined 2.5 points to 41.5. Although not the lowest reading, the October backlog is still fairly low by historical standards.
Historical Backlog figures since 2000
A low backlog, in of itself, is not necessarily a warning signal, as new orders is an important component to production and the PMI. Not that you really need supporting evidence to see this, but the following is a graph of the summation of the monthly change in new orders and backlogs tracked against production.
I did not run any statistics on the data, but the visual comparison provides a fairly compelling case of the importance of new orders and backlogs to production.
Turning to new orders, the index ticked up 1.9 points in October and settled in at 54.2. The reading is consistent with decent order intake in October. Looking ahead however, the customer inventories index is suggesting a better than average probability that new orders declines in future periods. I have detailed this analysis in prior posts, but as a brief refresh, the customer inventories index is a measure of the inventories levels that purchasing managers are seeing at their customers. This measure typically moves inverse with new orders. In addition, the customer inventories index, when at extremes, can provide indications of future new orders, i.e. a very low(high) measures suggests future growth(decline) in new orders.
The latest customer inventories index came in at 49, a 0.5 point improvement from the 49.5 in September. Despite the improvement, the customer inventories index remains high by historical standards (noting the average of the measure since inception has been around 45). A high reading suggests a better than average chance of declining new orders over the next six months.
