The October 2009 Manufacturing ISM Report On Business was released today. The report was quite positive. As a heads up, numbers greater than 50 are good news. The actual ISM PMI (Purchasing Managers’ Index) came in at 55.7, which killed the 52.0 to 54.0 Bloomberg consensus range. The two areas I’d like to highlight are employment and inventories. First, employment:

ISM’s Employment Index registered 53.1 percent in October, which is 6.9 percentage points higher than the 46.2 percent reported in September. This is the first month of growth in manufacturing employment following 14 consecutive months of decline. An Employment Index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Eight of the 18 manufacturing industries reported growth in employment in October in the following order: Petroleum & Coal Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Transportation Equipment; Food, Beverage & Tobacco Products; Machinery; and Fabricated Metal Products. The four industries that reported decreases in employment during October are: Primary Metals; Paper Products; Chemical Products; and Plastics & Rubber Products.

The short version: data indicates higher employment in manufacturing.

Now, inventories, a two parter starting with the manufacturers’ inventories:

Manufacturers’ inventories contracted at a slower rate in October as the Inventories Index registered 46.9 percent. The index is 4.4 percentage points higher than the September reading of 42.5 percent. An Inventories Index greater than 42.6 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis’ (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

Six of the 18 manufacturing industries reported higher inventories in October in the following order: Petroleum & Coal Products; Apparel, Leather & Allied Products; Plastics & Rubber Products; Chemical Products; Food, Beverage & Tobacco Products; and Transportation Equipment. The six industries that reported decreases in inventories in October — listed in order — are: Paper Products; Computer & Electronic Products; Fabricated Metal Products; Furniture & Related Products; Nonmetallic Mineral Products; and Electrical Equipment, Appliances & Components.

Then the customers’ inventories:

The ISM Customers’ Inventories Index registered 38.5 percent in October, slightly lower than in September when the index registered 39 percent. The index indicates that respondents believe their customers’ inventories are too low at this time. This is the seventh consecutive month the Customers’ Inventories Index has been below 50 percent, following eight months above 50 percent.

Plastics & Rubber Products is the only industry reporting higher customers’ inventories during October. The 11 industries that reported lower customers’ inventories during October — listed in order — are: Wood Products; Nonmetallic Mineral Products; Printing & Related Support Activities; Computer & Electronic Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Primary Metals; Paper Products; Machinery; and Chemical Products.

Now I have to backpedal on what I just said about numbers greater than 50 being positive. Let me explain. We have increased employment and decreased inventory. That means that people are selling stuff faster than they are making it / restocking it. If the current activity keeps trending positive, which there’s some hope of, there will be a lot of economic activity just from restocking inventories. This makes the low inventory numbers in this report a potential positive sign for the future.

There’s one caveat, and that has to do with whether or not this activity can be sustained. It would be reasonable to assume that inventories are at or near their bottom. That’s not the same thing as growth, but inventories don’t tend to hang around their bottoms very long. My concern for sustainability stems from how much of this activity is a one-time jolt. It would be rather difficult to estimate how much of this is due to cash-for-clunkers, but the program and its aftermath certainly contributed to these numbers. While I am aware that the GMAC bailout request is an attempt to continue the subsidy of automobile purchases, I am less than optimistic about its ability to succeed. Consequently, most of the optimism going forward must rest on inventory levels.