US October PMI Numbers Are Out and Better Than Expected (Though the Bar is Low)

ISM (Institute for Supply Management) and Markit Economics both came out with their October 2013 PMI (Purchasing Managers’ Index) figures, and the numbers could have been worse. ISM’s press release indicated a PMI of 56.4 and Markit’s press release indicated a figure of 51.8. ISM’s figures are fairly consistently 5-10% higher than Markit’s, of which we've talked about here and here, but both indicated tepid-to-modest growth in manufacturing activity.

Of course, Markit had to spice up the analysis with comments like “The US. Manufacturing sector ground to a near standstill in October.” Both these indices are developed in similar ways, with a composite PMI index calculated based on the lower level indices below:

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But, there are differences in terms of industry breakout, weightings of different types, seasonality adjustments, and the month-to-month variation of which companies on the survey panels/populations actually respond. If you factor these things together at any one time, as well as month-over-month, and it’s fair to say that measurement variation (of the methodology itself and the varying respondents in the populations) likely explains most of the differences between the two. The biggest thing is triangulate between them, but also use the different details that they provide. Markit provides deeper global data, but ISM offers more color/details within the US for Procurement professionals, including some sector level rankings/insights, quotable quotes, and views into supplier lead times. I’d also like to see more detail on purchase contract durations (i.e., are purchasing managers “going longer” and anticipating higher prices?)

In terms of purchase price, both ISM and Markit have ‘purchase price indexes’ that are going up.  The term purchase price index though that I just used is a misnomer in that the purchase price indices are not reflective of the % change in actual price, but rather, merely indicate that a higher % of net respondents are seeing more increases than decreases – as compared to previous month.

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Basically, prices are going up, in addition to average supplier lead times, but purchasers are being cautious with new orders (which Markit actually said contracted for first time) in response to modest growth/production numbers. So, in the short term, the economy has weathered the economic shutdown in the short term (although some sectors were clearly hit harder than others), but with another fiscal showdown looming in a few months and the political silly season ramping up even more as 2014 elections draw nearer, uncertainty will still rule the day.

Longer term though, the bets being placed in commodity markets are generally leaning towards tightening supply even though current supplies might seem plentiful. Nowhere is this more apparent than in liquefied natural gas (LNG). Fracking has been successful in increasing LNG supplies, but longer-term supply surpluses are by no means certain.  In fact, we are conducting a study jointly with ISM to assess purchasing manager sentiment on the issue.  The study can be found here.

If you are a supply-side practitioner, and would like a copy of this research, please participate in the study before next Friday, November 8th.

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