Manufacturing activity moderates in September

Economic activity in the manufacturing sector contracted at a slower rate in September compared to August, according to the Institute for Supply Management (ISM). Activity declined for the 11^th consecutive month.

ISM on Monday (Oct. 2) released the September Manufacturing ISM Report on Business that shows the purchasing managers’ index (PMI) increased by 1.4 percentage points to 49% in September from August. A PMI below 50% indicates manufacturing sector activity is contracting.

The September report shows new orders and backlogs decreased. Employment and production rose. Supplier deliveries were faster. Raw materials inventories fell, and customers’ inventories were too low. Prices fell. Exports and imports declined.

“The U.S. manufacturing sector continued its contraction trend but at a slower rate, recording its best performance since November 2022, when the PMI also registered 49%,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee. “Companies are still managing outputs appropriately as order softness continues, but the month-over-month PMI improvement in September is a clear positive.

“Panelists’ companies improved production compared to August and continued to manage head counts, primarily through attrition and hiring freezes,” Fiore added.

The five manufacturing industries that reported growth in September include nonmetallic mineral products; food, beverage and tobacco products; textile mills; primary metals; and petroleum and coal products.

Following are comments from survey respondents, who noted mixed reports of demand:

In the computer and electronic products industry, a respondent said, “customers are increasingly taking an active role in initiating new projects, looking for cost-reduction opportunities and lead-time mitigation, with a growing emphasis on collaboration. Post-pandemic, customers have learned they need partners to navigate rough waters.”

A respondent in the chemical products industry said, “we need to coordinate very closely with suppliers in order to yield a more cost-competitive offer. More back and forth is needed to reach a reasonable total price.”

In the nonmetallic mineral products industry, a respondent said, “cement negotiations have changed, with cement mills no longer offering annual or guaranteed pricing. We now want to contract more as a commodity, leaning toward quarterly, with fluctuating prices yet to be determined.”

A transportation equipment industry respondent said, “orders and production remain steady, and we are maintaining a healthy backlog. Continued inflation and wage adjustments continue to drive prices up, although we should get some relief from the markets stabilizing.”

A respondent in the food, beverage and tobacco products industry said, “cost increases are now generally isolated to specific commodities rather than blanket increases due to ‘inflation.’”

A respondent in the apparel, leather and allied products industry reported soft demand and that customers are “holding off on increasing inventories, hoping they can buy at lower costs.”

In the petroleum and coal products industry, a respondent said, “a recession feels imminent. Money continues to be pushed into the bank markets, driving inflation rates really high. Most plants are buying less material or reducing consumption in the name of sustainability, as well as running at 80% of capacity. Prices of some products may increase for the upcoming winter weather.

A respondent in the primary metals industry said, “business conditions and market conditions remain strong. We are projected to be at capacity in the next 12 months.”

In the textile mills industry, a respondent said, “new business development is coming onboard. However, many forecasts are set for the beginning of 2024. Hiring and retaining quality people is still a struggle.”

A respondent in the miscellaneous manufacturing industry said, “overall, things continue to be very steady: sales and revenue are as expected, and the supply environment has stabilized versus 2021-22. Some things to watch include the Panama Canal (drought), U.S.-China relations and the impact the UAW (United Auto Workers) strike could have on suppliers of ours who support automotive production. But overall conditions feel stable.”