Carr: Manufacturing Report Eases Recession Fears

Tuesday, 01 Nov 2011 02:11 PM

By Michael Carr

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October’s Institute of Supply Management Report on Business indicated that the manufacturing sector is still growing. While the index failed to meet the expectations of many analysts, the Purchasing Managers Index recorded its 27th consecutive month of growth.

One of the strongest leading indicators in the report rebounded strongly.

New Orders pushed back above the level associated with economic expansion after a brief one month dip.

Many economists believe this is one of the most reliable indicators of future recessions and the latest reading is another piece of evidence that growth will be slow but the economy should avoid recession.

Indexes compiled by the Institute for other countries have also generally been consistent with slow growth.

The report includes comments from participants and the final release presents several that sum up the general trends. An executive in the plastics and rubber products industry reported that, “Business is slowing — not crashing — but uncertainty and caution is the order of the day.”

Consumers are continuing to spend but switching to lower cost products when possible, according to a participant in the food, beverage and tobacco sector.

“Retail branded business is slower than expected due to consumers continuing to move to private label- and store-brand products for price advantage.”

Price pressures were not widespread. Thirteen of 18 industry groups reported paying lower prices for raw materials. This is the first time the prices component of the index has fallen in more than two years.

If this trend continues, consumer prices should fall next year, but additional declines need to be seen before hope for lower inflation becomes widespread.

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