According to the 43 FPDA respondents in the October Economic Indicators Report produced by Cleveland Research Group, the September FPDA Index produced a reading of 49, down from August’s reading of 54.7. The broader ISM index showed a reading of 56.2 in September, growing from August’s reading of 55.7.  Other highlights:

• Average sales were up 1 percent y/y in September vs. down 3 percent in August, likely lifted by one additional selling day in September-13 vs. September-12 levels. On a quarterly basis sales growth deteriorated sequentially; average 3Q sales were reported down 1-2 percent y/y vs. the1 percent y/y growth in our 2Q survey against comparisons that were significantly easier sequentially.
• The 2013 outlook is unchanged at down 1 percent y/y. The current outlook implies 4Q sales will likely remain steady and in the down 1percent y/y range, similar to the growth rates reported for the first nine months of the year.
• On a sequential basis, a net 2 percent of sources built inventory levels in September following five months of inventory reductions.

Demand continued to trend below expectations in September as the expected improvement from mobile OEM markets does not appear to have materialized while growth from oil field customers continues to slow.

The recent government impasse adds an additional headwind both to near-term growth and to the outlook, which calls for modest growth of 3 percent in 2014. The cautious initial outlook for 2014 is supported by still sluggish order activity and backlogs which have now declined for seven consecutive months.

The one bright spot appears to be inventory levels, which nudged into positive territory for the first time in six months, providing some hope that we are at or near the end of destocking.  Read the full report here.