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Manufacturing Optimism Eases From 13-Year High

Posted by Joseph Trevisani on Nov 1, 2017 1:09:02 PM

Business sentiment in the manufacturing sector remained very strong in October despite its decline from September's 13-year high.

The Institute for Supply Management said that its purchasing managers' index dropped to 58.7 from September's 60.8 record.  Even with the decrease optimism was above the 57.1 average so far this year.  The measure for employment slipped to 59.8 from September's seven year top of 60.3.   The important gauge of new orders dipped to 63.4 in October from 64.6. As with the overall index both sub-indexes were well above their average this year and for the past five years.

Factory expansion has been firm for more than two years, with the recent low in the PMI index at 49.4 in August 2016 just below the 50 dividing line between growth and contraction. 

The measure of export orders dropped to 56.5 in October from 57.0 Supplier deliveries eased to 61.4 from 64.4 and prices paid decreased to 68.5 from 71.5.  

U.S. manufacturing exports have been assisted by the sharp drop in the dollar this year following the steep ascent in late 2016 following the election of Donald Trump to the Presidency.   From its low in May 2016 to January 3rd the Dollar Index (DXY) gained 11 percent, making American exports appreciably more expensive.  Since that peak the U.S. currency has shed 8.2 percent against the DXY basket. At one point in September the DXY reached 91.663, well below its 92.944 low of last May. 

In a separate report the private payroll company ADP said 235,000 new workers had joined its companies' payrolls in October, more than double the 110,000 hires in September and the best figure in seven months.  Business services providers added 109,000 employees, the highest in this series  back to 2002. Construction firms added 62,000, the most since February 2006. 

The ADP results are considered a lead in to the government October Employment Situation Report on Friday.  The median forecast from the Reuters survey of economists is that the U.S. economy created 310,000 new positions last month. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts:  Thomson/Reuters

Manufacturing PMI

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Manufacturing New Orders

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Manufacturing Employment

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