Factory Growth Unexpectedly Advances to Four-Month High

Nissan factory
Robots operate on the factory floor at the Nissan Motor Co. manufacturing facility in Smyrna, Tenn. (Luke Sharrett/Bloomberg)

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A measure of U.S. manufacturing expanded in September at the fastest pace in four months, bolstered by robust demand for factory goods and burgeoning inventory.

The Institute for Supply Management’s gauge of factory activity rose to 61.1 from August’s 59.9, according to data released Oct. 1. Readings above 50 indicate expansion. The median estimate in a Bloomberg survey of economists called for a slight decline to 59.5.

The data suggest manufacturers are making some headway working through still-elevated order backlogs, but persistent shipping challenges continue to elongate delivery times. However, solid consumer demand and business investment should continue to support ongoing growth in the sector in the months ahead.

Seventeen manufacturing industries reported growth last month, led by furniture, petroleum and coal and machinery.

A measure of growth in backlogs eased to its slowest pace in three months, while the group’s index of new orders held at a solid 66.7. Production growth eased slightly, but the gauge of factory inventories rose last month at the fastest pace since October 2010.

Meantime, the shipment of both inputs and finished goods remains a major problem for manufacturers. Ports are grappling with record backlogs, trucking companies and railroads are facing bottlenecks, and shipping container costs have surged. ISM’s gauge of supplier deliveries rose to a three-month high in September and the ISM index of prices paid for inputs moved higher.

The report does signal factories are making only minimal progress filling a plethora of job vacancies across the sector. The group’s employment index rose to 50.2 after contracting in the prior month.

Next week’s government jobs report is forecast to show overall payrolls rose by about a half million in September, bolstered by around a 25,000 increase in manufacturing employment.

— With assistance from Kristy Scheuble.

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