Manufacturing slowed in October

Nov. 3, 2006
Manufacturing activity continued to grow in October-- but at the slowest rate since June 2003, according to the Institute for Supply Management (ISM).

Manufacturing activity continued to grow in October-- but at the slowest rate since June 2003, according to the Institute for Supply Management (ISM).

The ISM report said that its manufacturing index was 51.2%, with any reading over 50% indicating growth. That marked a 1.7% drop from September. The pricing trend dropped sharply in October when the index fell 14% from September to 47%, which indicates lower prices. Manufacturers’ backlogs contracted for the second consecutive month.

In another significant shift, manufacturers believe that their customers have sufficient inventory on-hand for the first time in 64 consecutive months. If that’s indeed true, it would cut a steady tailwind for freight volumes as wholesalers, distributors and retailers have aggressively been trucking goods throughout the supply chain to replenish and build up inventories.

“There was significant movement in most of the indexes as new orders and production continued to soften, while backlogs contracted for a second month,” said Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee. “There was particularly good news on the pricing front…[and]…the weaker dollar continues to support a strong export market.”

The manufacturing report follows a recent Dept. of Commerce report that shows the U.S. economy grew at a seasonally adjusted annualized rate of only 1.6% in the third quarter. Although 3Q was buoyed by solid 3.1% growth in consumer spending—which accounts for about 70% of the total economy—it was dragged by a 17.4% drop in residential investments. Capital expenditures continued to grow at a solid pace, up 6.4% compared with 2Q.

Although 3Q consumer spending was strong, in September there were signs that households were putting shopping sprees to rest. Disposable personal income increased 0.5% but consumer spending rose only 0.1%, a separate report from the Dept. of Commerce said.

For-hire truck tonnage in September rebounded at a seasonally adjusted 1.7% after falling 1.9% in August, the American Trucking Assns. (ATA) said.

“Even though truck tonnage improved in September, it’s easy to see that the pattern of starts and stops, which began in April, continued [in September],” said ATA chief economist Bob Costello. ATA described tonnage trends over the last two quarters as in a “seesaw pattern.”

“It’s no surprise that tonnage was off from September 2005, as the jump in hurricane-related freight last year is making year-over-year comparisons very difficult,” Costello added. “Hopefully, the recent drop in gasoline prices will result in a better-than-expected holiday sales season, and give a boost to truck volumes this year and early next year.”

To comment on this article, write to Terrence Nguyen at [email protected]

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