Manufacturing Indicators Push Higher in October

The early indications are that the manufacturing sector did much better than expected in October. The ISM manufacturing index (formerly known as the Purchasing Managers Index) rose for the fifth consecutive month to a level of 56.4 (a value above 50 indicates that business activity increased when compared with the previous month).

This index is now at its highest level in two years, and all of the underlying details were positive. It is particularly heartening that the new orders component of this index has been above 60 for three straight months. A robust reading from the manufacturing sector suggests that the fourth quarter GDP growth will also be strong.

The stronger than expected reading in the ISM manufacturing index was presaged by the sharp spike upward in the ISM-Chicago Index. This index surged 10.2 points, from a solid reading of 55.7 in September to a healthy 65.9 in October. Double-digit gains were reported in new orders, production and order backlogs. New orders for manufacturers in the Chicago area are at the highest level in nine years. The difference between the values for new orders and inventories, which foretells the trend in future production, nearly doubled. This was a very favorable report for manufacturers in the heartland.

Our own MoldMaking Business Index was also positive in October, but just barely. We will anxiously wait to see if it eventually responds favorably to the recent trends in the ISM indices. Molds are expensive pieces of capital equipment, so it is likely that there is a lag. But if conditions in the manufacturing sector continue to rise, then it is a near certainty that more molds and tooling will be required. This prediction is bolstered by the fact that output of plastics products has grown vigorously during the past year while capacity utilization rates have held steady.

The Chicago index is heavily influenced by activity in the motor vehicle sector, and as we have reported before, this remains one of the bright spots in U.S. manufacturing. Total motor vehicle assemblies are poised to register a solid gain in 2013, and the economic fundamentals that drive the auto industry continue to improve.

All of this points to a solid increase in the moldmaking industry in 2014. It is possible that policymakers in Washington could screw this up with another round of brinksmanship early next year, but I do not believe that this is the most likely scenario given the public's anger over their most recent shenanigans. If I owned a mold shop, I would plan on improving business conditions in the coming year.