Manufacturing ISM remains in contraction but production and employment broke down trends.
Economic activity in the manufacturing sector contracted in September for the eleventh month following a 28-month period of growth according to the Institute for Supply Management. However, production and employment both rose.
Please consider the September 2023 Manufacturing ISM® Report On Business® by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®).
“The Manufacturing PMI® registered 49 percent in September, 1.4 percentage points higher than the 47.6 percent recorded in August. The overall economy expanded weakly after nine months of contraction following a 30-month period of expansion. (A Manufacturing PMI® above 48.7 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index remained in contraction territory at 49.2 percent, 2.4 percentage points higher than the figure of 46.8 percent recorded in August. The Production Index reading of 52.5 percent is a 2.5-percentage point increase compared to August’s figure of 50 percent. The Prices Index registered 43.8 percent, down 4.6 percentage points compared to the reading of 48.4 percent in August. The Backlog of Orders Index registered 42.4 percent, 1.7 percentage points lower than the August reading of 44.1 percent. The Employment Index registered 51.2 percent, up 2.7 percentage points from the 48.5 percent reported in August.
Fiore continues, “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 percent. Companies are still managing outputs appropriately as order softness continues, but the month-over-month PMI® improvement in September is a clear positive. Demand eased marginally, with the (1) New Orders Index contracting, though at a slower rate, (2) New Export Orders Index continuing in contraction territory but with a marginal increase, and (3) Backlog of Orders Index declining. The Customers’ Inventories Index reading indicated improved supply chain efficiency, as output improved and customers’ inventories continued to decline. Output/Consumption (measured by the Production and Employment indexes) was positive, with a combined 5.2-percentage point upward impact on the Manufacturing PMI® calculation. Panelists’ companies improved production compared to August and continued to manage head counts, primarily through attrition and hiring freezes. Inputs — defined as supplier deliveries, inventories, prices and imports — continued to accommodate future demand growth. The Supplier Deliveries Index indicated faster deliveries for the 12th straight month, at a faster rate compared to August, and the Inventories Index remained in contraction territory, but improved month over month. The Prices Index remained in ‘decreasing’ territory, 4.6 percentage points lower than the August reading, signifying a return to price reductions, but energy costs in August and September could possibly affect future material costs. Manufacturing supplier lead times continue to decrease, but at a slow pace.
“Of the six biggest manufacturing industries, two — Food, Beverage & Tobacco Products; and Petroleum & Coal Products — registered growth in September.
“Demand remains soft, but production execution improved compared to August as panelists’ companies prepared for the fourth quarter and the close of the fiscal year. Suppliers continue to have capacity. Seventy-one percent of manufacturing gross domestic product (GDP) contracted in September, up from 62 percent in August. More importantly, the share of sector GDP registering a composite PMI® calculation at or below 45 percent — a good barometer of overall manufacturing weakness — was 6 percent in September, compared to 15 percent in August and 25 percent in July, a clear positive,” says Fiore.
The five manufacturing industries that reported growth in September are: Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Textile Mills; Primary Metals; and Petroleum & Coal Products. The 11 industries reporting contraction in September — in the following order — are: Printing & Related Support Activities; Furniture & Related Products; Plastics & Rubber Products; Paper Products; Fabricated Metal Products; Wood Products; Computer & Electronic Products; Machinery; Electrical Equipment, Appliances & Components; Chemical Products; and Transportation Equipment.
Diffusion Index Comments
The ISM is a diffusion index, signaling direction not amount. For example a firm hiring 10 workers and a firm laying off 200 workers balances out.
And there is a survival bias and a weighting bias.
Small Business Bankruptcies Surge in 2023, Five Reasons Why
Growth, if any, is tenuous and weak as Small Business Bankruptcies Surge in 2023.
The bond market yields are up again, and inflation is not under control.
Meanwhile Things Are Going So Well for Biden That … Biden cannot even convince Democrats his policies are working.
I’m looking for work. However, I don’t want to work 12 hour days 6 days a week, which is what employers want from hourly wage employees. This needs to change. But it can’t change if the labor laws require high minimium wages, a raft of benefits and inability to fire them if it doesn’t work out.
https://www.foxnews.com/media/entrepreneur-hails-amazing-opportunities-construction-industry-faces-critical-skilled-worker-shortage
While trillions of dollars have been invested into infrastructure in the past few years, the U.S. can’t stay competitive or maintain our way of life without workers able to complete projects, Witt argued.
“We need over 500,000 workers in the construction industry just to meet demand. And so there’s all of this talk about the infrastructure bill and the Inflation Reduction Act and the CHIPS Act, all this spending on infrastructure. But the reality is we can’t actually build it,” he said.
The economy has been far more resilient than many expected. However, I suspect that it should be slowing into year end. I would not be surprised to see a mild recession, though it will be difficult to distinguish that from the slow growth that I expect. Slow growth, or mild recession means steady demand for energy, and the oil and gas companies I own shares in will continue to do well.
There is always a small chance of a severe recession as well.
“Of the six biggest manufacturing industries, two — Food, Beverage & Tobacco Products; and Petroleum & Coal Products — registered growth in September.”
13 months of contraction in manufacturers’ demand, how is that not a serious indicator of looming recession?
But, hey, as we all go to hell in a hand basket of selected consumer goods in the CPI, let’s eat, drink and be merry! And stay warm! And mobile.
Mike, you are a wealth of insight and the absolute disproof of the oxymoron “economic heroes!” 😉
BIDENOMICS . . . nothing more to say . . .
Great news, we need a slowdown. Gasoline was down 15 cents or 4% since my last fill-up. I didn’t expect to see that. September cpi might be soft.