Economic activity in the manufacturing sector contracted in October for the eighth consecutive month, following a two-month expansion preceded by 26 straight months of contraction, say the nation’s supply executives in the latest ISM® Manufacturing PMI® Report.
The report was issued by Susan Spence, MBA, Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee.
“The Manufacturing PMI® registered 48.7 percent in October, a 0.4-percentage point decrease compared to the reading of 49.1 percent recorded in September. The overall economy continued in expansion for the 66th month after one month of contraction in April 2020. (A Manufacturing PMI® above 42.3 percent, over a period of time, generally indicates an expansion of the overall economy.)
The New Orders Index contracted for the second month in October following one month of growth; the figure of 49.4 percent is 0.5 percentage point higher than the 48.9 percent recorded in September. The October reading of the Production Index (48.2 percent) is 2.8 percentage points lower than September’s figure of 51 percent. The Prices Index remained in expansion (or ‘increasing’ territory), registering 58 percent, down 3.9 percentage points compared to the reading of 61.9 percent reported in September. The Backlog of Orders Index registered 47.9 percent, up 1.7 percentage points compared to the 46.2 percent recorded in September. The Employment Index registered 46 percent, up 0.7 percentage point from September’s figure of 45.3 percent.
“The Supplier Deliveries Index indicated slower delivery performance for the third consecutive month after one month in ‘faster’ territory, which was preceded by seven consecutive months in ‘slower’ territory. The reading of 54.2 percent is up 1.6 percentage points from the 52.6 percent recorded in September. (Supplier Deliveries is the only ISM® PMI® Reports index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 45.8 percent, down 1.9 percentage points compared to September’s reading of 47.7 percent.
“The New Export Orders Index reading of 44.5 percent is 1.5 percentage points higher than the reading of 43 percent registered in September. The Imports Index registered 45.4 percent, 0.7 percentage point higher than September’s reading of 44.7 percent.”
Spence continues, “In October, U.S. manufacturing activity contracted at a faster rate, with contractions in production and inventories leading to the 0.4-percentage point decrease of the Manufacturing PMI®. A chain reaction of one-month index improvements started with New Orders in August and flowed to Production in September. In October, it manifested in a 1.7-percentage point increase in the Backlog of Orders Index. These short gains have not appeared to translate into sustained growth for the sector, a reflection of continuing economic uncertainty.
“All of the four demand indicators (New Orders, New Export Orders, Backlog of Orders, and Customers’ Inventories indexes) improved, although they are still in contraction territory. The Customers’ Inventories Index contracted at a slower rate. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production.
“Regarding output, production deteriorated and employment contracted at a slower pace, as 67 percent of panelists indicated that managing head count is still the norm at their companies, as opposed to hiring.
“Finally, inputs (defined as supplier deliveries, inventories, prices and imports), are mixed, with the Supplier Deliveries Index indicating slower deliveries, the Inventories Index contracting at a faster rate, and the Prices Index continuing to indicate pricing increases, but at a slower rate. The Imports Index contracted at a slower pace.
“The commercial vehicle (CV) market remains depressed as customers continue to delay vehicle purchases. Uncertainty in price and transportation demand remains the center of attention. U.S. trade policy and reciprocal actions by China in the form of export controls on rare earths and semiconductors, as well as ocean freight carrier restrictions, have once again caused a lot of stress in supply lines. The CV industry is now bracing for the next round of tariffs focused on commercials vehicles, scheduled to begin on November 1.” (Transportation Equipment)
“The tariff trade war has negatively impacted agricultural export markets, driving down demand and price. This negatively impacts farmer revenue and the likelihood of farmers investing in new equipment.” (Machinery)
“The unpredictability of the tariff situation continues to cause havoc and uncertainty on future pricing/cost. But even with the tariffs, the cost to import in many cases is still more attractive than sourcing within the U.S. Challenges with tariffs on production equipment necessary for internal production makes it difficult to justify expansion of capacity.” (Computer & Electronic Products)
