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The Institute for Supply Management’s manufacturing index, the PMI, grew 3.9 percent to 59.3 in October, while new orders increased 7.7 percent to reach 67.9.
Any reading above 50 indicates manufacturing expansion. Bloomberg reports the PMI exceeded expectations, which economists had forecast at 56.
“It’s an excellent report,” said Tim Fiore, chair of the ISM’s manufacturing survey committee. “We are seeing the climb-out from the recession. We never expected to see that level of growth in new orders.”

Circuit board manufacturing
The pandemic weighed on factory output earlier in the year, but as businesses began to reopen, the manufacturing sector quickly recovered. October’s production index was up 2.2 percent to reach 63. Stronger sales and capital investment helped deplete inventories, prompting new orders.
Most PMI sub-indices have rebounded to August levels, said Fiore, which marked manufacturing’s recovery from shutdowns earlier in the year. Manufacturers and suppliers continue to operate in reconfigured factories and are more proficient at expanding output, he added.
Moreover, customers’ inventories (36.7) last month were at their lowest reading since June 2010 -- a level considered a positive for future production. The drop was the sixth straight since the height of the pandemic and sets the stage for steady production growth in coming months.
“Manufacturing performed well for the third straight month, with demand, consumption and inputs registering growth indicative of a normal expansion cycle. While certain industry sectors are experiencing difficulties that will continue in the near term, the overall manufacturing community continues to exceed expectations,” said Fiore.
For example, the electronics industry continues to struggle a bit on the supply side. “Covid-19 continues to have an effect on supplier support and operations, more from a decreased labor perspective rather than unavailable material,” said one tech executive. The ISM reported the computer and related products sector expanded in October.
Global distributor Future Electronics Inc. on Monday noted electronics component lead times are beginning to stretch. "We are seeing continued lead-time extensions in Q4 due to the increase in customer demand [including short-cycled customer orders], a ramp up in capacity utilization and access to raw materials beginning to tighten," according to Anthony Alberga, Corporate Vice President. This is in semiconductors, passives and discretes.
Overall, factory inputs — expressed as supplier deliveries, inventories and imports — continued to indicate input-driven constraints to production expansion, but at slower rates compared to September, said the ISM. Prices continued to expand at higher rates, reflecting a continued shift to seller pricing power. Employment reached expansion territory for the first time since last year, growing 3.6 percent to 53.2. More businesses are adding to their headcount than those laying off employees.
Backlog also expanded at a slightly faster rate compared to the prior three months. “Backlog didn’t grow at what we consider an ideal level – 55.7—but we’re not complaining,” said Fiore. This likely due to chemical sector, which was hit hard by multiple Gulf Coast hurricanes. Most chemicals are processed 24/7, Fiore explained, and can’t be stored like resins and plastics. “This sector lost output,” said Fiore.
Manufacturers continue to remain optimistic – there were two positive comments on the ISM survey for every cautious remark. That was slightly down from the September level, and Reuters warned the manufacturing industry may still have an uphill climb:
While the coronavirus crisis has boosted demand for goods complementing the pandemic life, a resurgence in new cases across the country could lead to authorities re-imposing restrictions to slow the spread of the respiratory illness as winter approaches, which could crimp activity. Government money for businesses and workers hit by the pandemic, which boosted economic growth in the third quarter, has dried up.
“I think the industry is anxious to get the election behind us and hope for a more stable environment,” Fiore concluded.
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