October’s 55.5 manufacturing PMI beats expectations

In October, U.S. manufacturing activity continued its growth trajectory for the tenth consecutive month, according to the latest report from the Institute for Supply Management (ISM). The Manufacturing Purchasing Managers' Index (PMI) stood at 55.5, exceeding analysts' expectations and signaling expansion. A PMI above 50 indicates growth, while a reading below 50 suggests contraction. The October figure represented a 10 basis point increase from the previous month and the same as the September reading.

The new orders index, a key gauge of future activity, also expanded for a 10th consecutive month, recording a 55.5 reading, which was 20 basis points higher than in September. Among the six largest manufacturing sectors, machinery, computer and electronics, transportation equipment, and chemical products all reported increases. The demand sentiment for new orders improved to a 1.8-to-1 positive-to-negative ratio, up from 1.7-to-1 in September.

Despite a slight dip in the backlog of orders (54.6), production (59) reached the highest level in five years, up 2.3 points sequentially. Customers' inventories (41.6) remained "too low," with no change from the previous month. This typically positive reading for inventories suggests future production growth. The supplier deliveries index (59.1), which tracks delivery times to manufacturing facilities, has signaled supply chain constraints for 11 consecutive months. The dataset improved by 10 basis points sequentially.

Cost inflation remains a concern, as the prices index (75.2) remained elevated, but was 2.7 points lower than in September. Overall, respondents' sentiment was classified as 34% positive and 66% negative, 800 basis points worse than two months ago. Key negative comments included pricing volatility (62%), longer lead times (41%), tariffs (25%), and the Iran war (21%), with many mentions combining multiple factors.

The ISM data typically leads changes in less-than-truckload (LTL) shipments by approximately three months. Public LTL carrier tonnage turned positive in March based on a year-over-year comparison, with carriers reporting improved demand trends last week in line with third-quarter results. Companies such as XPO (NYSE: XPO) and Old Dominion Freight Line (NASDAQ: ODFL) noted strong customer demand expectations and a shift toward multiyear contracts as truck capacity tightens.

Less-than-truckload stocks saw an average rise of over 3% in early Monday trading, while the S&P 500 increased by 0.6%.