Manufacturing Index Signals Monthly Strength

In a surprise upturn boosted by domestic demand, the manufacturing PMI is signaling monthly strength, coming in at 54.0 for the October flash for the best showing since May. The result is exactly 1 point over both the Econoday consensus and the September flash and 9 tenths over the final reading for September.

New orders are at a seven-month high and are described as strong despite only a modest contribution from export orders. Production this month is also at a seven-month high. Hiring is up from September's 27-month low.

Manufacturers in Markit's sample remain cautious about inventories which decreased for a third straight month. Input costs are down due to the strong dollar and falling raw material prices especially for steel. Finished prices are steady at a 37-month low.

This report conflicts with the regional manufacturing reports which so far are pointing to another weak month for October. And this report typically runs hot compared not only to other reports but most importantly to government data which, unlike this report, have been in contraction for the last year. Watch for the Dallas and Richmond Fed reports early next week to see if strength in this report is confirmed.

Recent History Of This Indicator:
The manufacturing PMI flash has been holding safely above the breakeven level of 50 but has nevertheless been inching to 2-year lows, the result of weak foreign demand and general caution among customers. Orders, production, and employment have all been slowing while price readings have been sliding. Forecasters see the October flash coming in little changed at 53.0. Though levels in this report have been holding in the plus column, actual factory orders and shipments as tracked by the government have been edging into contraction over the past year.