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U.S. Manufacturing Index Drops
Nov 7, 2008
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Economic activity in the manufacturing sector in the United States failed to grow in October for the third consecutive month, and the overall economy concluded 83 consecutive months of growth, according to the latest Manufacturing ISM Report On Business.

"The PMI indicates a significantly faster rate of decline in manufacturing when comparing October to September," according to Norbert J. Ore, C.P.M., chair of ISM's Manufacturing Business Survey Committee. "It appears that manufacturing is experiencing significant demand destruction as a result of recent events, with members indicating challenges associated with the financial crisis, interruptions from the Gulf hurricane, and the lagging impact from higher oil prices. This is the lowest level for the PMI since September 1982 when it registered 38.8%."

Manufacturing in the United States contracted in October as the PMI registered 38.9%, 4.6 percentage points lower than the 43.5% reported in September. This is the lowest reading since September 1982 when the PMI registered 38.8%. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

A PMI in excess of 41.1%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates contraction in both the overall economy and the manufacturing sector. Ore stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through October (47.8%) corresponds to a 2.1% increase in real gross domestic product (GDP). In addition, if the PMI for October (38.9%) is annualized, it corresponds to a 0.7% decrease in real GDP annually."

ISM's New Orders Index registered 32.2%in October, 6.6 percentage points lower than the 38.8 percent registered in September. This is the lowest reading for this index since June 1980 when the index was at 24.2%.

The Manufacturing ISM Report On Business is published monthly by ISM, a supply management organization. The report has been issued by the association since 1931.

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