(Bloomberg) -- US manufacturing activity shrank in October for a seventh month to the lowest reading since July 2023, dragged down by a drop in production and shrinking inventories.
The Institute for Supply Management’s factory gauge fell to 46.5, data out Friday showed. Manufacturing activity has now been contracting — meaning a reading below 50 — every month expect one in the past two years.
Production activity also dropped sharply in October, to 46.2, marking the biggest monthly decline since April 2021.
Timothy Fiore, chair of the ISM’s Manufacturing Business Survey Committee, said he didn’t think the disruptions from two major hurricanes, Helene and Milton, had a significant impact. However, the uncertainty about the outcome of the US presidential election is hindering investments in inventory and capital expenditures as companies wait to see what economic policies will be enacted.
“We’re probably going to stay in this slowdown period all the way through the end of the year, and we probably won’t start to grow until January or February,” Fiore said on a call with reporters.
Factory price pressures on materials and inputs returned last month after dipping in September. The prices-paid index rose 6.5 points — the most since January — to 54.8. A Boeing strike along with the two hurricanes may that have limited supply and driven up prices.
Data out Thursday showed that the Federal Reserve’s preferred measure of underlying inflation accelerated in September, bolstering the case for a slower pace of interest-rate cuts following the 50-basis-point reduction at the central bank’s last meeting.
Two measures of orders and employment remained in contraction territory last month, but both improved somewhat. The ISM manufacturing employment index rose to 44.4, the fifth month under 50. New orders increased one point to 47.1.
Of the six biggest manufacturing industries, only two saw growth: the food and beverage category and the computer and electronic products sector.
The ISM report also showed inventories shrank to the lowest level since June 2012, suggesting producers are keeping stockpiles lean.
Select ISM Industry Comments
- “Right-sizing continues. Contingency plans have been formulated to anticipate trade policies that will impose tariffs on key materials.” - Chemical Products
- “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.” - Transportation Equipment
- 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.” - Transportation Equipment
- “Sales have been very slow the past six months. Interestingly, though, inquiries are up more than 30 percent from a year ago. This indicates there is pent-up demand, but customers are skittish about national and global economic conditions.” - Machinery
- “Business levels remain depressed. It feels like a ‘wait and see’ environment regarding where the economy is heading; customers don’t want to commit to inventory, which is resulting in lower order levels.” - Fabricated Metal Products
- “This has been an interesting fourth quarter already. The port strikes, hurricanes and election will all affect us in some way. Our industry is energy intensive, so our largest concern is the national and state mandates toward electrification.” - Paper Products
- “The potential port strike sent ripple effects through our industry. We have several large imports occurring in January, which created anxiety around critical components being delivered on time for a large, planned capital project. The three recent hurricanes missed large manufacturing hubs on the Gulf Coast but have still caused minor delays.” - Petroleum & Coal Products
The hurricanes did have an impact on October’s payrolls.
Separate data from the Bureau of Labor Statistics released Friday show that 512,000 people in nonagricultural jobs were unable to work due to inclement weather in October. Another 1.41 million people who usually work full-time could only find part-time work due to the weather.
Manufacturing employment decreased by 46,000 last month, reflecting a decline of 44,000 in transportation equipment manufacturing that was largely due to strike activity, according to BLS figures. The October decline was the most since April 2020.
--With assistance from Mark Niquette.
(Adds graphic, Fiore comments)
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