US manufacturing powers up in October: ISM

08:25 | 02/11/2010
US manufacturing unexpectedly picked up steam in October, raising hopes for a strong final quarter that could underpin a flagging economic recovery, a key industry survey showed Monday.

The Institute of Supply Management (ISM) said its survey of purchasing managers nationwide revealed strong gains in new orders and production, pushing up its index to 56.9 per cent, from 54.5 per cent in September.

The surge was much stronger than a dip to 54.0 per cent expected by most analysts.

Manufacturing activity has expanded for 15 consecutive months but momentum had been slowing since April. The October jump suggested new verve in the sector that has been a key driver of the recovery.

Any number above 50 per cent indicates expansion.

"This month's report signals a continuation of the recovery that began 15 months ago, and its strength raises expectations for growth in the balance of the quarter," said Norbert Ore, head of the ISM's manufacturing business survey committee.

With 14 of 18 industries surveyed reporting growth in October, he said, "manufacturing continues to outperform the other sectors of the economy."

New orders jumped to 58.9 per cent, up a whopping 7.8 percentage points from September.

Production shot up by 6.2 points to 62.7 per cent.

Ryan Sweet at Moody's Analytics said the report was "very encouraging," noting that new orders had snapped a four-month run of declines.

The data suggested "the odds of the economy backtracking into recession hasn’t risen appreciably over the past month," he said. analysts highlighted a warning sign in the decline in unfilled orders for the second straight month.

"Unless order backlogs can be replenished, future production growth will be at the mercy of growth in new orders," which are highly volatile, they said in a client note.

David Resler of Nomura Global Economics said the surge in manufacturing reinforced the firm's view of a stuttering recovery.

"The apparent slowdown in the economy in the spring and summer represented little more than the normal ebb and flow of data in the early phases of a recovery and was not an early sign of renewed recession," he wrote.

Economic growth has slowed overall this year since the recession officially ended in June 2009.

In the third quarter, gross domestic product rose at an annual rate of 2.0 per cent, slightly higher than the 1.7 per cent pace in the prior quarter but still substantially lower than GDP growth of 3.7 per cent in the first three months of the year.


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