ISM Manufacturing Data Looking Worst Since 1982 Recession

According to the October ISM Manufacturing survey, manufacturing in the US contracted at the fastest pace since 1982 last month, when the index slid to 38.9 from 43.5 in September. September also saw a large decline from 49.9 in August. This rapid retrenchment indicates that the recent turmoil's in the financial markets have had an immediate impact on the real economy. The deceleration apparent in inflation, due to the record drop in commodity prices since peaking in July, is apparent in the prices paid index which has tumbled to 37 from 77 only two months ago. Any reading below 50 indicates contraction, while a number above 50 indicates growth.

The only sub-indexes to show growth last month were inventories, which are not a good sign for future demand. Production fell to 34.1 from 40.8, new orders slid to 32.2 from 38.8, and backlogs tumbled all the way down to 29.5 from 35. Supplier deliveries, eased into contraction at 49.2 versus 52.5 in September. New export orders, which had been supporting GDP growth, fell to 41 from 52 in September. Employment fell again to 34.6 from 41.8, suggesting larger employment losses for the October non-farm payroll report.

Manufacturing is on the front line of the slowdown in consumer spending in the US, as well as the tightening credit conditions globally, which are making it harder to secure funding for international trade.