ISM reports unexpected slowdown in growth of U.S. manufacturing sector, though new order totals are climbing

November 1, 2011

Although various metrics related to the state of U.S. manufacturing showed signs of positive growth last month, the most recent data from the Institute for Supply Management (ISM) indicates that the sector's troubles are not yet completely finished. The ISM index of national industrial activity, which had increased by a point to 51.6 in September, dropped again, falling by 0.8 to reach an October total of 50.8, according to Reuters.

The news source reports that this development is not exclusive to the U.S. Data from Canada, the United Kingdom and China has presented similar trends in those countries. Tom Porcelli, a chief economist at RBC Capital Markets in New York City, spoke to this.

"We're starting to see a broader slowdown globally," Porcelli told the news source. "You had global activity moving along at a reasonable pace but that's starting to fade."

Despite these facts, which may understandably be troubling to some, new order totals rose to 52.4 from last month's 49.6. According to Bloomberg, this metric currently stands at its highest level in the past six months.

Additionally, it is entirely possible that the dip in the ISM's total may not be indicative of a lasting slowdown, as the economic difficulties in other parts of the world, particularly China and Greece, are largely cited as a major reason for U.S. manufacturing companies cutting their production.

What this means for U.S. businesses in the sector is, essentially, that they must perform at the highest levels possible in terms of production and quality in spite of the present unfavorable economic developments. The rise in new orders proves that significant demand still exists for the products from sector companies, and leaders of these firms should take full advantage of that fact by supplying superior items that continue to be a force to be reckoned with in the marketplace.

Simultaneously, these companies may want to consider eliminating certain products from their catalogs – items for which production is not cost-efficient due to poor market performance or is otherwise detrimental in more ways than it is beneficial.

This may allow for a reallocation of capital, personnel and resources in order to maximize production capacity of the most profitable offerings in a company's line. It could also free up the necessary money to support the hiring and training of new skilled workers.