US Factory Activity Accelerates in October as ISM Manufacturing PMI Rises to 55.5, Production Hits Highest Since 2021

US manufacturing activity expanded at a faster pace in October, with the Institute for Supply Management’s (ISM) manufacturing PMI climbing to 55.5 from 54.5 in September, the organisation reported on Monday. It was the 10th consecutive month of expansion in the sector, according to ISM.

The reading topped all but one forecast in a Bloomberg survey of economists, according to a Bloomberg report carried by Transport Topics. ActionForex put market expectations at 54.7. Susan Spence, who chairs ISM’s Manufacturing Business Survey Committee, said the October figure corresponds to a 2.7% annualised increase in real gross domestic product, adding: “The overall economy expanded for the 24th month in a row.”

Production hits highest since 2021

The production index jumped to 59.0 from 56.7, its highest since November 2021, ISM said. New orders edged up to 55.5 from 55.3, growing for a 10th straight month, while the employment index slipped to 52.4 from 52.7. Bloomberg noted factory head count increased for a fourth month.

Inventories moved back into growth at 51.4 from 48.6, while order backlogs eased to 54.6 from 56.4. New export orders rose to 51.2 from 50.9 and imports to 52.9 from 51.0. ActionForex observed that the pick-up in production was considerably stronger than the improvement in incoming demand.

Twelve of 18 industries reported growth, including machinery, computer and electronic products, primary metals and transportation equipment. Printing, paper products and nonmetallic mineral products contracted. Spence said general sentiment among respondents worsened for a third month, with 34% of comments positive and 66% negative. A machinery respondent said business remained strong, driven partly by data centres and mission-critical infrastructure, while a transportation equipment respondent said customers were still in wait-and-see mode.

Price pressures ease but stay high

The prices index fell 2.7 points to 75.2 from 77.9, below the 77.5 expected according to ActionForex. ISM said 53.1% of respondents reported paying higher prices, down from 58.6% in September. Spence said the reading was still being driven by rising steel and aluminium prices that affect the entire value chain. A chemical products respondent said costs were up more than 6% this year.

The supplier deliveries index rose to 59.1 from 59.0, indicating slower deliveries for an 11th consecutive month.

Second survey shows slower orders

A separate survey from S&P Global put its final October manufacturing PMI at 54.9, down from a preliminary 56.0 and 55.9 in September, investingLive reported. It showed employment growing at the strongest pace since April 2021 and selling prices rising at the fastest rate since September 2022, while new order growth slowed to its weakest since March. S&P Global Market Intelligence chief business economist Chris Williamson said “growing pains are clearly evident” among producers.

What’s next

investingLive’s analysis said higher costs and firm hiring could give the Federal Reserve less room to ease policy. Finimize said sticky input costs help explain why economists still see another rate hike as plausible, citing Reuters figures showing September PCE inflation at 3.6% and the Fed funds target range at 3.75%-4.00%.

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