Key US manufacturing index hits 26-year low

03 November 2008 17:09  [Source: ICIS news]

WASHINGTON (ICIS news)--The US manufacturing sector sank to its lowest level in a quarter of a century in October, a key report said on Monday, with demand eroded by the financial crisis, energy prices and hurricane disruptions.

 

The Institute for Supply Management (ISM) said its closely watched purchasing managers index (PMI) slid to 38.9% for October, down by 4.6 points from September’s PMI of 43.5%.

 

The October PMI of 38.9% is the lowest reading in 26 years, the institute said. The nearest previous low for the index was the 38.8% recorded in September 1982.

 

The sharp decline in the October PMI marks the third consecutive month of US manufacturing contraction and follows the sharpest one-month fall in seven years when the index plummeted by 6.4 points to 43.5% in September.

 

A PMI reading of 50% or higher indicates that manufacturing industries - key downstream consuming sectors for chemicals - are experiencing growth. A reading below 50% means that the broad manufacturing sector is in contraction.

 

The index has been at or just below 50% for the last 12 months before nosediving in September.

 

With October’s equally sharp decline, “it appears that manufacturing is experiencing significant demand destruction”, said ISM survey manager Norbert Ore.

 

Ore said that institute member companies reported they are facing sharp demand reductions because of “the financial crisis, interruptions from the Gulf hurricane and the lagging impact from higher oil prices”.

 

In a further worrisome indicator, Ore said that export orders for US manufactured goods contracted in October for the first time in nearly six years.

 

US export sales have been the one relative bright spot for the US economy over the last year, but growth in that area has also slowed recently.

 

Among the 19 major manufacturing sectors surveyed by ISM for its monthly index, only two - apparel and computers - reported even modest growth. The other 17 production industries, including chemicals and plastics, were in contraction during October, the institute said.

 

Other manufacturing sectors reporting declines include many that are key downstream consuming industries for chemicals, such as wood products, fabricated metal, furniture, textile mills, machinery, printing, transportation and appliances.

 

($1 = €0.78)

 

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