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US manufacturing grows at fastest pace in 2 ½ year: ISM

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US manufacturing grows at fastest pace in 2 ½ year: ISM

Manufacturing activity in the United States accelerated at the fastest pace in two-and-a-half years in October, according to the Institute for Supply Management. The closely monitored report confirmed the US manufacturing industry grew for the 53rd consecutive month, despite the 16-day partial government shutdown.

“New business is booming,” said one manager from the textile mills sector. Textile mills led 14 of the 18 manufacturing sectors to growth last month, sending the October PMI reading to 56.4, a yearly high. A PMI reading above 50 indicates growth, whereas a reading below the 50 mark means the manufacturing industry is contracting.

New orders expanded for a fifth consecutive month, with ten of the 18 manufacturing sectors reporting growth. Production growth remained positive for the fifth consecutive month, but fell slightly from September. In total, 12 of the 18 sectors reported an increase in overall production. New export orders increased 5 percentage points over the previous month; the new order sub-index rose to 57.0, the highest since April 2012. In total, ten industries reported growth in new export orders.

Employment growth was positive in October, although the pace of hiring declined. Employment growth was positive for the fourth consecutive month, with 12 industries increased their uptake of staff.

While the pace of growth exceeded expectations, some managers expressed a great deal of concern about the government shutdown. “The government shutting down and threatening to go into a default position is causing all kinds of concerns in our markets,” said one manager from the fabricated metal products. Declining consumer confidence is also prompting big box stores to introduce new discounts to increase sales in the short-term, according to a representative from the food, beverage and tobacco products sector.

The government shutdown is believed to have cost the economy $24 billion. The multiplier effect of the shutdown has yet to be determined. On aggregate, however, the manufacturing industry performed better than economists expected. The holiday season will likely create further momentum for the manufacturing industry, although the threat of a second budget confrontation could create strong headwinds not only for manufacturers, but the economy as a whole.

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