(Bloomberg) -- US manufacturing activity shrank in September for a sixth month, reflecting weak orders and declining employment.
The Institute for Supply Management’s factory gauge held at 47.2, data out Tuesday showed, extending a period of persistent softness. A reading below 50 indicates contraction.
The rates of decline for the group’s measures of orders and output eased up from the prior month but remained in contraction territory. Bookings shrank for a sixth month, keeping production constrained and pushing down the ISM’s employment index.
“Demand remains subdued, as companies showed an unwillingness to invest in capital and inventory due to federal monetary policy — which the US Federal Reserve addressed by the time of this report — and election uncertainty,” Timothy Fiore, chair of the ISM’s Manufacturing Business Survey Committee, said in a statement. The Fed lowered rates a half percentage point on Sept. 18.
A strike at Boeing Co., which began in the second week of September, is exacerbating an already sluggish aerospace and transportation equipment sector, Fiore said on a call with reporters.
The October survey results also will be affected by disruptions in production caused by Hurricane Helene and potentially the strike at many US ports, Fiore added. He said he’s optimistic it won’t be a long work stoppage.
Thirteen industries reported contraction in September, led by printing, plastics and rubber, and wood products. Five sectors expanded.
Materials Costs
Subdued demand, including from overseas customers, helped reduce price pressures on materials and inputs. The prices-paid index fell 5.7 points — the most since May 2023 — to 48.3, the first time this year that the gauge has indicated decreasing overall costs.
Cheaper input materials, such as oil, can help lead to further declines in prices for finished goods as well as restrain services inflation. That would keep Fed policymakers on track to continue lowering interest rates to guard against any deterioration in the labor market.
The survey was conducted prior to a strike at East and Gulf coast ports that risks pushing up shipping costs and import prices. The work stoppage affects 36 ports that have a combined capacity to handle as much as half of all US trade volumes, and the closures immediately halt container operations and auto shipments.
The ISM manufacturing employment index dropped to 43.9 in September, marking a fourth month of contraction. Some 8% of respondents reported increasing employment, the smallest share since the onset of the pandemic.
The Bureau of Labor Statistics issues its latest employment report on Friday, and economists expect another decline in factory payrolls. Separate job openings data out Tuesday showed little change in August manufacturing vacancies.
Limited capital spending, owed in part to high borrowing costs and uncertainty surrounding the November presidential election, remains a headwind for manufacturing. Moreover, export markets are fragile. The ISM index of export orders declined last month and showed the steepest pace of contraction since January.
Select ISM Industry Comments
“North America demand has started to weaken.” — Chemical Products
“Global demand continues to remain soft. Fourth-quarter forecasts have been further reduced, with several new programs shifted from 2024 to 2025. Manpower, working capital and supplies are being flexed down in response.” — Transportation Equipment
“We are anticipating a record sales volume for 2024.” — Food, Beverage & Tobacco Products
“The general slowdown in the economy is allowing for prices to continue to stabilize.” — Computer & Electronic Products
“A continuing low order rate is resulting in ongoing manufacturing adjustments to balance output with demand.” — Machinery
“The fourth quarter is slower than anticipated. We won’t realize the effect of interest rate adjustments with new project starts until the first quarter of 2025.” — Fabricated Metals
“Business is flat. Waiting for interest rates to drop and the election outcome in November before we confirm our 2025 plans.” — Furniture
“Our sales continue to be flat.” — Textile Mills
“Still hiring to fill vacant positions in production/management. Not adding new jobs. Automotive original equipment manufacturers (OEMs) are starting to slow or cancel orders. The pace is slowing.” — Primary Metals
The ISM report also showed inventories shrank at the fastest pace this year, suggesting producers are keeping stockpiles lean.
--With assistance from Mark Niquette.
(Adds graphic, Fiore comment on strikes, hurricane)
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