Demand is lower but prices paid for inputs are also on the decline
Rising interest rates have begun to erode demand, but not enough to push the manufacturing sector into contraction. Manufacturing posted another month of growth in September, according to the latest Manufacturing Purchasing Manager’s Index (PMI) posted by the Institute for Supply Management (ISM).
However, September’s reading of 50.9 percent marked the slowest level of expansion since May 2020—the height of COVID uncertainty. It was 1.9 percentage points lower than the 52.8 percent recorded in August.
“The U.S. manufacturing sector continues to expand, but at the lowest rate since the pandemic recovery began. Following four straight months of panelists’ companies reporting softening new orders rates, the September index reading reflects companies adjusting to potential future lower demand,” says Timothy Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee.
A combination of the New Orders Index returning to contraction, New Export Orders Index in its second month of contraction, Customers’ inventories remaining low, and the Backlog of Orders Index approaching contraction means demand continues to soften.
Meanwhile, Consumption (measured by the Production and Employment indexes) declined during the period, with a combined negative 5.3-percentage point impact on the Manufacturing PMI as a whole. The ISM’s Employment Index returned to contraction after just one month of expansion, and the Production Index increased by 0.2 percentage point, signaling only modest growth. Many companies report they are now managing head counts through hiring freezes and attrition to lower levels, with an eye to more uncertainty on medium- and long-term demand.
Lastly, Inputs (supplier deliveries, inventories, prices and imports) are levelling out and the Inventories Index increased as companies continue to manage total supply chain inventory. The Prices Index decreased for a sixth straight month and nearing contraction territory, while Imports modestly grew.
A few other data points include:
- Companies slowed hiring activity
- Month-over-month supplier delivery performance was the best since December 2019
- Growth of prices slowed notably for the third consecutive month;
- Lead times continue to ease for capital equipment and production materials.
“Markedly absent from [respondents’] comments was any large-scale mentioning of layoffs; this indicates companies are confident of near-term demand, so primary goals are managing medium-term head counts and supply chain inventories,” says Fiore.
Nine manufacturing industries reported growth in September, in the following order: Nonmetallic Mineral Products; Machinery; Plastics & Rubber Products; Miscellaneous Manufacturing; Apparel, Leather & Allied Products; Transportation Equipment; Food, Beverage & Tobacco Products; Computer & Electronic Products; and Electrical Equipment, Appliances & Components.
Seven industries reported contraction in September compared to August: Furniture & Related Products; Textile Mills; Wood Products; Printing & Related Support Activities; Paper Products; Chemical Products; and Fabricated Metal Products.
