Factory Growth Readings Mixed, but Both Show Expansion

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Ford Assembly (An assemblyman makes final adjustments to a Ford Focus on the assembly line at the Ford Michigan Assembly Plant i
Carlos Osorio/AP
By Rodrigo Campos

NEW YORK -- The U.S. manufacturing sector expanded at its fastest pace in years in October despite a partial government shutdown during the first half of the month, according to one industry report, though a separate reading cast doubt on the strength of factory activity growth.

The Institute for Supply Management said its index of national factory activity rose to 56.4 in October, its best showing since April 2011. Financial data firm Markit said its final U.S. Manufacturing Purchasing Managers Index stood at 51.8 last month, beating the preliminary October reading but notching the worst final showing since October 2012.

Both figures indicated expansion in the manufacturing sector and ISM's figure beat expectations of a slight slowdown in the growth rate. The two surveys use some different methodologies, including one related to seasonal adjustment.

Treasuries prices sagged after the ISM data, while the U.S. dollar extended gains against both the euro and the yen. On Wall Street, stocks initially held on to early gains but were trading slightly lower midday.

"The underlying components were a little mixed, but for the most part, this report continued to point to strength in the factory sector," said RBS (RBS) analysts in a note about the ISM figures. %VIRTUAL-article-sponsoredlinks%"It seems like the shutdown did little to dampen the underlying strength in manufacturing in October."

Analysts expected weaker readings after a political stalemate in Washington forced a partial federal government shutdown through the first 16 days of October.

October was the fifth consecutive month of quicker growth in the goods-producing sector since it contracted in May, according to ISM's data.

Last month was the fifth in a row of quicker growth in the goods-producing sector, according to ISM's data.

The figures came a day after a report showed business activity in the U.S. Midwest surged past expectations in October as new orders hit their highest level since 2004. Weekly unemployment claims also fell, in welcome news for the nation's battered labor market.

Still, the mixed results in the two factory readings Friday underscored lingering uncertainty over the state of the world's largest economy. Earlier this week the Federal Reserve suggested it still sees a need for stimulus and maintained its $85 billion a month bond-buying program to prop up the economy.

Job growth in the broader U.S. economy was tepid in September, and economists polled by Reuters expect a government report due on Nov. 8 to show hiring slowed further in October.

Separately, U.S. data showed October auto sales for the three Detroit-based automakers rose by double-digits from a year earlier, but results at Ford and Chrysler narrowly missed analyst expectations.

Factory Growth Readings Mixed, but Both Show Expansion
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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