The US manufacturing sector contracted for the sixth consecutive month in September, according to the latest report from the Institute for Supply Management (ISM).
The ISM’s factory index remained unchanged at 47.2, continuing to signal a downturn as figures below 50 indicate contraction. This marks a prolonged slowdown in industrial activity amid subdued demand, ongoing economic uncertainty, and cautious business investment.
Key Details:
- The ISM report showed that new orders and production rates, while still contracting, saw a slight improvement compared to August. New orders rose to 46.1, and the production barometer increased to 49.8.
- Thirteen industries reported contractions, led by sectors such as printing, plastics, and wood products. Five sectors, including food and beverage, reported growth.
- The prices-paid index fell to 48.3, its lowest this year, reflecting declining input costs, which could help reduce inflationary pressures on finished goods.
- The employment index dropped to 43.9, indicating continued downsizing as manufacturers align staffing levels with weaker demand.
Contributing Factors: Timothy Fiore, chair of the ISM’s Manufacturing Business Survey Committee, noted that weak demand, both domestically and internationally, continues to weigh on the sector.
“Companies are hesitant to invest in capital and inventory due to federal monetary policy and uncertainty surrounding the upcoming presidential election,” Fiore said.
High borrowing costs, driven by the Federal Reserve’s tight monetary policy, are contributing to reduced capital spending. The Fed recently cut interest rates by half a percentage point, which may provide some relief in the future, but the impact is unlikely to be felt before 2025, according to industry comments.
Industry Impacts and Outlook: The slowdown is particularly pronounced in sectors like machinery and fabricated metals, where manufacturers are adjusting output to match lower demand. Export markets have also been weak, with the export orders index showing its steepest decline since January. On a more positive note, cheaper raw materials, such as oil, have helped ease cost pressures for manufacturers.
The ongoing dockworker strike at US East and Gulf Coast ports has raised concerns about potential disruptions to supply chains and higher shipping costs. Fiore called the strike “scary,” noting that any prolonged stoppage could exacerbate challenges in the manufacturing sector.
Looking Ahead: Economists expect the manufacturing sector to remain subdued in the coming months, particularly as businesses navigate political uncertainty and restrictive monetary policy. However, some manufacturers are optimistic about 2024. Food and beverage companies, for example, are projecting record sales volumes for the year ahead.
Bloomberg, Market Watch, Yahoo Finance contributed to this report.
