Economists expected the ISM® manufacturing PMI® to hold steady at 49.0. Instead, it went into significant contraction with a steep drop in employment.
Manufacturing ISM Contracts 12 Months
Please consider the ISM Manufacturing Report for October 2023.
The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee:
The U.S. manufacturing sector contracted in October, as the Manufacturing PMI® registered 46.7 percent, 2.3 percentage points lower than the reading of 49 percent recorded in September. “This is the 12th month of contraction. Of the five subindexes that directly factor into the Manufacturing PMI®, only one (the Production Index) is in expansion territory, down from two in September. The New Orders Index logged its 14th month in contraction territory, and at a faster rate in October. Of the six biggest manufacturing industries, one — Food, Beverage & Tobacco Products — registered growth in October,” says Fiore. A reading above 50 percent indicates that the manufacturing sector is generally expanding; below 50 percent indicates that it is generally contracting.
A Manufacturing PMI® above 48.7 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the October Manufacturing PMI® indicates the overall economy contracted after one month of growth preceded by nine consecutive months of contraction and 30 months of expansion from June 2020 to November 2022. “The past relationship between the Manufacturing PMI® and the overall economy indicates that the October reading (46.7 percent) corresponds to a change of minus-0.7 percent in real gross domestic product (GDP) on an annualized basis,” says Fiore.
New Orders
ISM®’s New Orders Index contracted for the 14th consecutive month in October, registering 45.5 percent, a decrease of 3.7 percentage points compared to September’s reading of 49.2 percent. “Of the six largest manufacturing sectors, only Transportation Equipment reported increased new orders. New order levels contracted at a faster rate compared to September as a result of sluggishness in three capital-focused industries (Computer & Electronic Products; Machinery; and Fabricated Metal Products) that are among the seven biggest by share of manufacturing GDP,” says Fiore. A New Orders Index above 52.7 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).
Employment
ISM®’s Employment Index registered 46.8 percent in October, 4.4 percentage points lower than the September reading of 51.2 percent. “The index indicated employment contracted in October after one month of expansion and three months of contraction before that. Of the six big manufacturing sectors, three (Machinery; Transportation Equipment; and Food, Beverage & Tobacco Products) expanded. Labor management sentiment at Business Survey Committee respondents’ companies continues to indicate a slowdown in hiring and, in October, an increase in staff reduction activity. Attrition, freezes and layoffs to reduce head counts increased during the period, with layoffs the primary tool, indicating a more urgent need to reduce staffing,” says Fiore. An Employment Index above 50.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
Prices
The ISM® Prices Index registered 45.1 percent, 1.3 percentage points higher compared to the September reading of 43.8 percent, indicating raw materials prices decreased in October for the sixth consecutive month. The index has been in contraction (or “decreasing”) territory since May, but a higher reading compared to September indicated a slower rate of price decreases. “Panelists’ comments indicate that buyers and suppliers continue to aggressively negotiate price levels for 2024, with commodity markets remaining volatile. Recent increases in energy markets primarily impacted the plastics markets in October. None of the top six manufacturing industries reported price increases in October. Eighty-nine percent of panelists’ companies reported ‘same’ or ‘lower’ prices in October, compared to 87 percent in September,” says Fiore. A Prices Index above 52.9 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.
Backlog of Orders
ISM®’s Backlog of Orders Index registered 42.2 percent, a 0.2-percentage point decrease compared to September’s reading of 42.4 percent, indicating order backlogs contracted for the 13th consecutive month (and at a faster rate in October) after a 27-month period of expansion. Of the six largest manufacturing sectors, two (Food, Beverage & Tobacco Products; and Transportation Equipment) expanded order backlogs in October. “The index remains in strong contraction as production rates and new order levels continue to have a negative effect on backlogs,” says Fiore.
New Export Orders
ISM®’s New Export Orders Index registered 49.4 percent in October, 2 percentage points higher than the September reading of 47.4 percent. “The New Export Orders Index indicated that export orders contracted for the fifth month in a row in October; the index has shown weak performance for the last 15 months. Comments continue to note this weakness, but panelists indicate that trade appears to be improving,” says Fiore.
Inflation Reduction Act and UAW Strike in Play
I suspect the transportation equipment expansion is related to Biden’s ridiculously named Inflation Reduction Act (IRA). Note that transportation backlogs increased.
Some of the drop in employment is likely related to the UAW strike, now settled. Next month’s numbers may be more telling but not all of this is related to the strike.
Telling Statistic
Arguably, the most telling statistic is that eighty-nine percent of panelists’ companies reported ‘same’ or ‘lower’ prices in October.
Overall weakness in prices can be attributed to falling demand, not strikes, And it’s despite artificial demand spurred by the Inflation Reduction Act.
Falling prices will be welcomed by the Fed.
Wake Up Mr. President, Consumers Don’t Want EVs
Despite subsidies, EVs are piling up on dealer lots. Prius hybrids have a 1-week supply. The Mustang Mach-E SUV has a 3 1/2 month supply.
For discussion, please see Wake Up Mr. President, Consumers Want Hybrids, Not EVs.
An Epic Battle Between Ford and GM Over Batteries
On September 30, I noted An Epic Battle: Ford to Use China’s Battery Technology, GM Wants it Blocked
In a battle between GM and Ford, $7,500 in tax credits are at stake depending on Biden’s definition of “foreign entity of concern.” The exclusion aims to reduce US reliance on Chinese batteries and materials to make them.
What About Consumer Concerns?
Lost in the battle over “foreign entity of concern” ought to be the concern “how many people don’t want EVs crammed down their throats?”
No one is taking legitimate consumer concerns like price, insurance, number of reliable chargers, charging times, inflation, and even hurricane evacuations into proper consideration.
Biden’s Self-Made Dilemma
Biden is guaranteed to upset someone. That’s what happens when you interfere in the free markets, taking sides.
Congressional members from Michigan have lined up behind GM. So did Senator Joe Manchin.
The infrastructure isn’t ready in either case, and consumers aren’t either.
Wow, they just announced the past again. I hadn’t realized lagging indicators applied to current events…
Tomorrow will be someone’s yesterday.
ISM is just one number out of many that indicate a softening in the economy.
Funny, where are all the usual comments about how these numbers are manipulated, or outright lies. I guess that only happens when the numbers are positive. When its negative, it must be okay. Lol!
Anyway, because the economy “appears” to be softening I continue to sell portions of my positions in stocks into the current strength, and raising a bit more cash, to be applied at a more opportune time. Love those oil stocks.
Yet another complaint by PapaDave about not having enough commenters to whine about. But happy to hear he’s pulling money out of the market.
I see autos being a big factor in recession. How many people can afford (and qualify) for an 8-10+% interest rate with a $48,000 average car price. Repo’s are significantly increasing. When auto sales decrease so does manufacturers of these new parts. They’ll still have some manufacturing of parts to repair vehicles. The cost of all insurance (home, auto, health) increasing 25+% disposable income has/will significantly decrease.
Home insurance cost decrease? Not if you live in Florida
No. Insurance is increasing so disposable income is decreasing.
The EV market sold 873,000 cars in the first three quarters of 2023 and will most certainly hit 1 million sold by year’s end. The growth rate slowed to 49% from 55% last year and if you break it down Tesla is by far the best-selling car. In fact it is the best-selling car in the world now. Now that BYD has turned into loss, Tesla not only is the best-selling car bit also has the highest margins. No wonder all the legacy car manufacturers are putting money into ads everywhere saying EVs are over. More likely their plans for EV domination are over. This is a good example of how disruptive technology disorganizes legacy companies into irrelevance in a very short time.
What a conundrum. They need the profits from ICE to fund EV but now ICE is in loss. On top of it they had to agree to a crippling wage increase when they are at a loss and when their technology disrupter is still selling well with nice margins. They have no operations they can sell to raise cash because all the potential buyers are in the same sad state. All this with EVs only having 8% market share in the USA. Next year that will probably be above 12%. Eliminating subventions would only send them deeper underwater and probably only slow down Tesla slightly. Game over.
Apparently, in short order buying an EV will have all the flexibility of choosing an operating system for your PC or Mac.
There DEFINITELY ARE inflation reduction aspects to the IRA act. Specifically – ONE OF THE LONGEST STANDING BIGGEST DRIVERS OF INFLATION IS HEALTHCARE COSTS. THE GOVERNMENT’S NEW ABILITY TO NEGOTIATE DRUG PRICE IS LONG OVERDUE COMMON SENSE AND WILL DEFINITELY LOWER THOSE MED COSTS.
(That and go check Cuba’s Cost Plus pharma too.)
” GOVERNMENT’S NEW ABILITY”…….?
Governments have no abilities, new nor old ?
ISM may rise > 50 after UAW agreement with Ford & Stella and new military supply
to Israel and Ukraine. Israel tries to cripple Hamas and prepares for a second front.
In the last 6 days there is very little hand to hand combat. Once a suspicious target is identified it pops up on the plasma screen, in the brigade command center bunker – F15, Apaches helicopters, drones, 155mm guns and missile boats – get the order within minutes they drop their ordnance and eliminate the target. That might change inside Gaza city.
From bad to worse:
https://i.pinimg.com/564x/df/90/32/df9032baebaf92067a4215ae96a62194.jpg
The inflationary depression is deepening rapidly. It will continue, even faster, until inflation is abandoned. This could take a while as the bloaters must inflate until they explode. They know no other way.
“This is the 12th month of contraction.”
And here we are after 12 months acting like ISM is some mythical indicator of an impending recession. Well, back in the day, maybe it was. Nowadays, not so much.
How MANY MORE months will it take of ISM contraction to induce a recession. Or, is this measure not relevant at this time given how much money is still sloshing around in the system?
Inquiring minds want to know.
It probably was more important before we exported our manufacturing base to China. One of the remaining manufacturing sectors, the military industrial complex, is probably doing pretty good given Biden’s penchant for war. All those weapons shipped to Ukraine and now Israel. I hear a 155mm canon shell costs $5000! Cha-ching!
All that war is an investment don’t you know because we will have to buy more bombs to replace the ones we gave away. Why we couldn’t keep the bombs we have and spend the money on other things isn’t explained. It’s right out of the Paul Krugman “alien invasions are good for the economy” school of economics.
Breaking windows to grow the economy is just so 18th century. Now we just blow up human beings and call it stimulus.
It is even better. The military equipment to Ukraine is lend-lease. The US will receive payments from Ukraine for decades if the UK is any example. That gives us leverage plus an upfront profit. Sex sells but war REALLY sells.
Bombs and military equipment have an expiration date so when they are too old you have pay, quite expensively’ to decommission them. Fortunately, we can give the older ones to Ukraine who disposes them for us free of charge on Russian soldiers and assets. In the meantime, we build new ones which we would have had to do anyway. European Nato members are doing the same thing. Everyone benefits except Russia.
Internationally condemned cluster munitions the US would have had to pay to dispose of were sent to Ukraine to use. If the US has any poison gas munitions left perhaps they can send them to Israel for use in the Gaza tunnels. Apparently morality is not an impediment.