The ISM Manufacturing Index is derived from a survey of purchasing managers and their outlook on overall conditions by looking at factors such as orders for durable goods, industrial production and hiring. It gives a general direction rather than the specific strength of the factory sector and manufacturing activity in the U.S. A reading above 50 is an indicator that the manufacturing sector is growing while a reading below 50 indicates a contraction.
The October ISM Manufacturing report came in at a level of 48.3, depicting a slight increase from September’s index of 47.8. Still, the index was slightly lower than the expectation of 49.0. The index is down 16.3% from October of 2018, when it was at 57.7.
The end of the General Motors strike, in addition to their higher than expected earnings this quarter, could contribute to the manufacturing index increase since last month. Still, the service industry may continue to crowd out the contracting manufacturing industry; this is evident from the 1.0% compounded annual growth rate of total jobs in the service industry from 2008 to 2018, as opposed to the annual decline of 0.5% of jobs in manufacturing. Since manufacturing only contributes to 11.6% of GDP, a contraction in manufacturing will not hugely affect the U.S. economy.