TEMPE, Ariz.¡ªFollowing September¡¯s seven-year low, the manufacturing sector¡¯s PMI hit its lowest level in 26 years in October, according to the Institute of Supply Management.
October¡¯s PMI of 38.9% indicates contraction for the third consecutive month, and is the lowest level since September 1982, when the index registered 38.8%. Last month, the PMI registered at 43.5%.
A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.
Norbert J. Ore, Chair of the Institute for Supply Management Business Survey Committee told Modern he was surprised by the October results, which signaled the weakness in manufacturing. Only two industries reported growth in October, apparel, leather and allied products and computer and electronic products. Typically, six-to-eight industries report growth.
¡°We¡¯ve seen a significant deterioration,¡± he said.
Nearly every reported indicator contracted in October. New orders fell for the eleventh month, hitting 32.2%, the lowest reading for that index since June 1980 (24.2%). Export orders, immediately affected by the strength of the dollar, contracted for the first time, following 70 months of growth.
Judging by the new orders index, which typically leads by 30-to-60 days, Ore said there is not a lot of hope in the near future to see growth return.
¡°We¡¯re looking for the rate of decline to slow,¡± he said. ¡°That¡¯s going to be the name of the game for the foreseeable future.¡±
Ore said there were three major reasons for the contraction in manufacturing, including the lingering effect of $140 per barrel for oil.
¡°That really changed behaviors and created a tremendous amount of demand/destruction,¡± Ore said.
The devastation of Hurricane Ike in Houston had a huge impact in the chemicals and plastics areas, where some plants still aren¡¯t up and running.
The financial crisis has also caught up with the manufacturing industry. A special set of questions relating to the effect of the financial turmoil were included in this month¡¯s report, with 52.9% indicating that they or their suppliers have been affected by the financial crisis.
Ore said he was pleasantly surprised by the near split among respondents, and had expected more companies to be affected.
¡°Not everyone¡¯s being affected by the same things,¡± he said. ¡°You don¡¯t hear of companies are having to close plants cause of financing or any of those things.¡±
