Survey Points to Economy’s ‘Healthy Resilience’ : Purchasers’ Index Rebounds After 3 Months

The U.S. economy expanded in October after slowing in September to its lowest rate of growth in six months, according to an index released today by the National Assn. of Purchasing Management.

The group’s composite index rose to 56.8% in October from 54.8% in September and 56.2% in August. A reading above 50 indicates that the economy is generally expanding.

The group said the rise in the October index breaks a three-month decline and marks the 27th consecutive month that the indicator has exceeded 50%.

“October’s growth heralded a healthy resilience in the economy as it entered the fourth quarter,” said Robert Bretz, chairman of the association’s business survey committee.

“Despite the apparent slowing in the growth rate of new export orders, the continued high level of new orders, coupled with a reduced inflation rate, suggests the fourth-quarter economy will be as good as the previous three,” he said.

Bretz said that if the economy continues to expand at the same pace as in the first 10 months of the year, it would lead to a rate of growth of about 3.7%.

“The average for the first 10 months of 1988 is 56.2%. Past experience indicates that if the average were to continue for the last two months of 1988, it would be consistent with real gross national product growth of about 3.7%, unchanged from the past three months,” said Bretz.

New export orders, a major element of recent economic growth, continued to increase but showed signs of fatigue for the third consecutive month, the report said.

The index on new orders rose to 58.9% in October and reversed three consecutive months of slowing growth. The NAPM said this suggests continued growth in production in November.

Inventories declined slightly in October, marking the third straight month they have decreased. Inventories dipped to 49.4% from 49.6% in September.

The report said that October was the 27th month in which more purchasers reported price increases than decreases.

But it also said the price index fell for the fourth consecutive month to 70.7% from 72.2% in September and is at the lowest since the 67.8% in May, 1987.

“The declining rate of price increases, coupled with a significant reduction in the number of commodities noted as being higher priced, may well be the beginning of a trend toward lower inflation,” the group said.

Employment increased sharply in October, with its index rising to 53.7%, the highest level in 1988, from 40.2% in September.

The NAPM index is based on data from monthly surveys of purchasing managers in more than 250 industrial firms.