Manufacturing activity contracted again in October for the seventh consecutive month, according to the new edition of the Manufacturing Report on Business, which was issued today by the Institute for Supply Management (ISM).
The report’s benchmark reading, the PMI, at 46.5 (a reading of 50 or higher indicates growth), fell 0.7%, turning in its lowest number in 2024, with the PMI contracting for the 23rd time in the last 24 months, and the overall economy expanding for the 54th consecutive month, since contracting in April 2020.
The October PMI is at its lowest level in the last 12 months and is 1.4% below the 12-month average of 47.9. March’s 50.3 reading represents the highest level over that period.
ISM reported that that five manufacturing sectors grew in October, including: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Computer & Electronic Products; and Miscellaneous Manufacturing. Sectors seeing contraction included: Textile Mills; Printing & Related Support Activities; Transportation Equipment; Chemical Products; Electrical Equipment, Appliances & Components; Machinery; Primary Metals; Nonmetallic Mineral Products; Plastics & Rubber Products; Fabricated Metal Products; and Paper Products.
The report’s key metrics were mixed in October including:
- New Orders, which are considered the engine that drives manufacturing, increased 1.0%, to 47.1, contracting, at a slower rate, for the seventh consecutive month, with three sectors reporting growth, and the category seeing no steady growth since a 24-month growth period through May 2022;
- Production, at 47.1, fell 3.6%, contracting, at a faster rate, for the fifth consecutive month, with six sectors reporting growth;
- Employment, at 44.4, was up 0.5%, contracting, at a slower rate, for the fifth consecutive month, with three sectors growing—and the July, September, and October readings representing three of the lowest readings since July 2020, when it came in at 43.7;
- Supplier Deliveries, at 52.0 (a reading above 50 indicates contraction), were off 0.2% compared to September, slowing, at a slower rate, for the fourth consecutive month, with seven sectors reporting slower deliveries (this segment has contracted in 20 of the last 21 months, since a 52.4 September 2022 reading);
- Backlog of Orders, at 42.3, fell 1.8%, contracting, at a faster rate, for the 25th consecutive month, after 27 months of growth, with three sectors growing;
- Prices, at 54.8, increased 6.5%, increasing after a September contraction, which was preceded by eight months of gains, with 11 sectors reporting they paid higher prices;
- Inventories, at 42.6, fell 1.3%, contracting, at a faster rate, for the second consecutive month, with two sectors reporting higher inventories; and
- Customers’ Inventories, at 46.8, down 3.2%, shifting from “too low” to “just about right,” with five sectors reporting higher customers’ inventories
ISM panel respondents’ comments in the report were mixed, with a sharp eye on various situations, like the election and the brief East and Gulf Coast Ports’ labor stoppage.
“Market demand has significantly decreased in the second half of 2024 and is expected to be soft through the first quarter of 2025,” a Transportation Equipment respondent said. “Although inflation has stabilized and returned to historical levels, and interest rates are decreasing, there appears to be a general pessimism in the economy that is driving customers to be more restrictive in their capital expenditures, including investment in commercial vehicles. Uncertainty in the outcome of the upcoming election has resulted in several risk analysis studies to be prepared, particularly focused on the future of the electric vehicle (EV) migration and trade restrictions/penalties.”
And a Petroleum & Coal Products respondent said that the potential port strike sent ripple effects through his industry, with several large imports occurring in January, which created anxiety around critical components being delivered on time for a large, planned capital project, coupled with the three recent hurricanes missed large manufacturing hubs on the Gulf Coast but have still caused minor delays.
Tim Fiore, Chair of the ISM's Manufacturing Business Survey Committee, said that this report represented “more of the same,” in terms of its findings.
“The only really significant thing that's come out in the month is that it appears that we're probably not going to see a demand grow out here until sometime in the first half of next year, primarily because the comments that I received in the month of October indicate that not only are they concerned about the election, they're more concerned that all candidates are espousing inflationary policies,” he said. “The Federal Reserve will not be able to continue on its rate decline policy in light of fiscal expansion.”
From a manufacturing output perspective, he explained the 46.2 October Production reading was lower than what was wanted, but the reason for that is that companies are reducing their production output, which is consistent with the latest forecasts.
“The latest forecasts are probably worse than what they were back in May, so they're not looking as good because the order book hasn't filled up,” he said. “And when the order book continues to decline, you're eventually left with no choice but to de-staff. And the de-staffing, like I said, they probably want to make sure that's all done before January. Having an employment number come in a little bit higher than what was expected is no big surprise, because probably everybody has come to that same conclusion that we need to get these people out before the year is over.”
Between now and the end of 2024, Fiore said he expects the PMI to be higher than 45 to 50, or somewhere below 50, with the expectation that will be the case at least into January, if not into March.
“The issue is if we are going to have a unified Congress or is it going to be split,” he said. “If the three houses are all unified, it's going to be inflationary, no doubt, whether it be Trump and tariffs or whether it be Harris or handouts, it's going to be inflationary. And the Federal Reserve strategy is going to have to change, because they don't drive strategy. They implement strategy to respond to other actions. The fiscal policy has priority. Whatever the elected government decides to do, the Fed has to respond. And if they decide to implement inflationary policies, which they have done in the last two elections…that's exactly what they did, whether it be Trump or whether it be Harris. If they do that again, the Fed's going to have to reverse its rate reduction environment and either hold steady for longer or increase rates back to where they were. That's the unknown here now.”
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