Manufacturing Gaining Some Steam

With the latest Institute of Supply Management (ISM) report showing the fourth consecutive month of expansion in manufacturing activity, the economic firm Global Insight believes that the industrial sector is poised for a rebound. The Purchasing Managers’ Index (PMI) for October came in at a surprising 57.0. Not only was this substantially higher than the 53.7 seen during September, but it was the highest level since December 1999. (An index reading above 50 indicates expansion.) This report also echoes anecdotal information seen across a wide number of industrial sectors and individual manufacturers—business activity has indeed picked up.

The latest orders data also support this optimism. September’s new orders for all durable goods increased 0.8% from August. Year to date, they are 0.5% above last year’s pace. Some of the major segments driving this orders growth: machinery, up 1.7%; computers and related products, up 12.2%; nondefense capital goods excluding aircraft, up 5.5%; and defense capital goods, up 27.3%.

For manufacturing to truly recover, though, investment must also ignite. After being constrained for more than two years, there is proof that business investment is about to come back to life. Investment includes spending on everything from high-tech equipment and transportation equipment to structures and traditional machinery. While all of these investment categories are expected to improve substantially over the next two years, the timing of their takeoffs will differ. Some categories like high-tech equipment, namely computers and related equipment, are already experiencing healthy growth.

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