Report On Business® Roundup: September Manufacturing PMI®
The Manufacturing ISM® Report On Business® numbers for September revealed another month of contraction — that’s six in a row and 22 out of the last 23 — but again exuded stability, with such dynamics as production and prices significantly moving in the right direction.
However, recent and breaking news after the data was compiled and before the report’s release on Tuesday threatens to make that modest progress short-lived. The Manufacturing PMI® reading of 47.2 percent matched the previous month, but Hurricane Helene devastating parts of the Southeast and dockworkers strike at ports on the East and Gulf coasts have raised anxiety about the impacts on factories and supply chains.
“It's scary,” Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee, told a conference call of reporters on Tuesday. “The impact will be great, but I’m optimistic we’ll see the dockworkers strike resolved within a week.
September ISM Manufacturing PMI up to 47.2 vs. 47.5 est. & 47.2 prior … new orders up to 46.1 vs. 44.6 prior; prices paid plunged to 48.3 vs. 54 prior … employment slipped to 43.9 vs. 46 prior pic.twitter.com/HtI76IPS5j
— Liz Ann Sonders (@LizAnnSonders) October 1, 2024
“The hurricane tore through a key part of the country, and even the areas not hit saw refineries and plants shut down (as a precaution), and they’ll have to start up again. Transportation channels have been disrupted as well, so all of that is going to make noise in the data for October.”
Fiore noted that Helene’s wake resembles the damage done by Hurricane Harvey in 2017, which dragged down some of the manufacturing index data. What’s more, the continuing strike at Boeing will impact Transportation Equipment, one of the largest in the sector. And Iran firing missiles into Israel on Tuesday suggests the geopolitical oven is hotter than ever.
“I’d like to see companies taking proactive measures to make sure that they don’t end up behind the eight ball here and have to try to recover,” Fiore said. “(September) was a good month — stable, still contracting at moderate levels, but companies cleaned up some areas.”
The most significant tidying involved head counts and inventory levels. The Employment Index dropped 2.1 percentage points to 43.9 percent, but Fiore said this indicated continuing efforts to right-size head counts to align with demand projections.
The Inventories Index reveals a similar mindset; after a brief foray into expansion territory the previous month, a reading of 43.9 percent in September indicates companies better aligned stock levels with production output. “Companies are getting their costs bases more in line with their projected revenue forecasts,” Fiore said.
The Prices Paid component of the ISM Manufacturing PMI fell to 48.3, a big drop from the prior 54.0 and the lowest since December. If services inflation doesn't see any uptick, the historical relationship suggests further declines in inflation measures are likely. pic.twitter.com/o7FXWesI9O
— Liz Young Thomas (@LizThomasStrat) October 1, 2024
Among the bright spots, the Production Index — which has been resilient for much of the PMI® contraction period — was up 5 percentage points to 49.8 percent. And the Prices Index returned to contraction (or “decreasing”) territory at 48.3 percent, with such commodities as aluminum and steel showing less volatility.
However, those trajectories could be temporary amid current events, especially the dockworkers strike. “Production was a big positive in September, and I would hate to see that come down because of a man-made activity,” Fiore said.
Lastly, Fiore reaffirmed his sentiment from a month ago: The most critical November election result for businesses will be clarity for planning. And that, he added, is the key for a manufacturing recovery in 2025.
“All we’re really waiting for here is new orders,” he said. “The Federal Reserve lowering interest rates is going to take a little bit of time to filter in. We might see some early activity on inventory replenishments, but I think the new order level remained fairly subdued here until we get to the election. Then, companies are going to be looking for growth in the first quarter.”
The Report On Business® roundup:
Barron’s: Manufacturing Activity Contracts Again. Rate Cuts Aren’t Helping, Yet. “Manufacturers have been struggling through a sluggish economy for years and are laying off workers to balance their costs with lower demand. … Interest rates and the election continue to be top of mind for manufacturers, (Fiore) added, adding uncertainty to the business planning process. It’s another weak report, and it won’t get much better in October.”
Bloomberg: U.S. Manufacturing Activity Contracts for a Sixth Straight Month. “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.”
CNBC: Job Openings Rise, Manufacturing Slips Further. “The Manufacturing (PMI®) for September ... is the sixth consecutive read under 50 percent, which is contraction,” analyst Rick Santellli said. “If you look at (the Prices Index), this is a component we want to be moving lower. We were expecting 53.5 percent a huge drop, this is key, 48.3 percent. That is the weakest level of the year.”
Mace News: Manufacturing in Contraction for Sixth Straight Month as Uncertainty over Fed Rate Policy, Election Weighs on Investment, Demand. “(Fiore) said the Fed rate cut in September is likely to boost the sector in early 2025. He has said the expected first rate cut in four years by the Fed in September was unlikely to push up new orders for several months. He repeated his conviction that the manufacturing sector is stuck in a temporary trough.”
MarketWatch: U.S. Manufacturing Activity Contracts for the Sixth Straight Month. “Uncertainty over the regulatory, fiscal and trade policy is holding down activity, and this will persist into 2025, said Richard Moody, chief economist at Regions Financial Corporation. The Federal Reserve’s recent half percentage point interest rate cut may help, but not until new projects are started in the first quarter, according to a source in the fabricated metals industry.”
ISM manufacturing PMI shows another contraction for Sep at same pace as Aug; new orders and employment declined again while production only fell marginally; index still points to growth in overall economy despite a continuing recession in manufacturing: pic.twitter.com/0T2shMgOog
— E.J. Antoni, Ph.D. (@RealEJAntoni) October 1, 2024
Reuters: U.S. Manufacturing Steady in September; Prices Paid Measure Lowest in Nine Months. “The factory employment slump deepened, which could pose a downside risk to manufacturing payrolls in September. The (Employment Index) dropped to 43.9 percent from 46.0 percent in August. The index has been in contraction territory for four straight months, with respondents in the ISM survey reporting their companies were ‘continuing to reduce head counts through layoffs, attrition and hiring freezes.’ ”
ISM’s Services PMI® will be unveiled on Thursday, and the Hospital PMI® on Monday. For the most up-to-date content on the reports under the ISM® Report On Business® umbrella, use #ISMPMI on X, formerly known as Twitter.
(Photo credit: Getty Images/Ric Agular)