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Report On Business® Roundup: October Manufacturing PMI®

November 01, 2024
By Dan Zeiger

The Manufacturing ISM® Report On Business® numbers for October came in under economists’ expectations and indicated yet another month of sector contraction — seven in a row and 23 out of the last 24 — so perhaps a Halloween theme was appropriate.

“After some good news, we have the black cat crossing in front of us. ... Economists had expected a slight rise, to 47.6 (percent), but instead, it’s a lower number,” Bloomberg TV analyst Michael McKee said after the report’s release.

However, after a spooky Thursday, it wasn’t really a freaky Friday, at least regarding the Manufacturing PMI® data. The more appropriate movie reference is “Groundhog Day,” with the October composite index figure of 46.5 percent and subindex readings revealing yet another month of sluggish demand, employment right-sizing and companies hesitating to invest until there’s more certainty on future interest rate cuts and the direction of the country following the election next week.

Markets weren’t frightened, with all three major indexes and Treasury yields rising on Friday despite the PMI® — which registered its lowest reading since July 2023 (46.5 percent) — and a federal jobs report that revealed just 12,000 positions added in October, a figure held down by labor turbulence and the back-to-back hurricanes hitting the Southeast.

But for a sector that is long past tired of discussing contraction and would much rather focus on growth, the last two years of waiting for demand have felt like the crash after a sugar high. The New Orders Index (47.1 percent in October) hasn’t indicated sustained growth since May 2022. The Backlog of Orders Index (42.3 percent) contracted for a 25th straight month.

“As I’ve been saying for the last two or three months, the manufacturing sector is probably going to stay in a slowdown through the end of the year,” 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 Friday. “Growth probably won’t start until January or February, until we see who wins the election and what the policies will be.”

He continued, “In the meantime, I don't think we’re going to see a huge number of new orders coming in.”

A key reason for the lack of new orders is a potential reemergence of inflation, due to the fiscal policies of the administration taking office in January 2025. That could cause the U.S. Federal Reserve (fed) to hit the brakes on future rate reductions, which would limit orders and investments.

The kicker: Respondents have reason to be concerned about both major candidates, Fiore said, with Democratic nominee Kamala Harris proposing stimulus spending and Donald Trump, the Republican candidate, doubling down on tariffs.

The personal consumption expenditures price index that is closely watched by the Fed hit a 12-month rate of 2.1 percent in September, down 0.2 percentage points and close to the 2-percent target. After a month in contraction (or “decreasing” territory), the ISM Manufacturing Prices Index increased 6.5 percentage points to 54.8 percent in October.

“Market demand has significantly decreased in the second half of 2024 and is expected to be soft through the first quarter of 2025,” wrote a survey respondent in Transportation Equipment. “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.”

Manufacturing companies are only getting leaner, with the Employment Index in contraction for a fifth straight month as right-sizing of workforces continues, and the Inventories Index registering 42.6 percent, its lowest reading since June 2012 (42.3 percent).

On the bright side, supply chain disruptions from the hurricanes appear to have had minimal impact on the October data. The Supplier Deliveries Index, though continuing to indicate slower lead times, decreased 0.2 percentage points to 52 percent. And a resolution of the strike at Boeing, which could happen next week, would provide a badly needed boost to a Transportation Equipment industry that contracted strongly in October, Fiore said.

“That’s one of the big six industries in manufacturing, and aerospace is a big part of it,” Fiore said. “Also, Boeing is a large exporter. So, it’s a big component of the equation, and the strike is not helping.”

For context, the Manufacturing PMI® averaged 46 percent for the 25 months around the recession of 1989-90. It averaged 44 percent for an 18-month period during the Great Recession of 2008-09. The average for the current 25-month contraction period: 48 percent.

Once again, not “Halloween” with Michael Myers, but “Groundhog Day.” And next month, that same clock alarm is likely to sound again for the U.S. manufacturing sector.

The Report On Business® roundup:

Barron’s: Manufacturing Activity Remained Sluggish in October. “It’s another weak report. At least it isn’t a surprise. Many manufacturers that recently reported third-quarter earnings have talked about sluggish demand. ... For now, investors are left hoping interest-rate cuts will spur demand and that the end of the presidential election cycle will remove some uncertainty.”

Bloomberg: U.S. Manufacturing Activity Falls to Lowest Level Since July 2023. “Overall, manufacturing activity has been contracting every month except one in the past two years. 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.”

MarketWatch: ISM Factory Index Drops to Lowest Level in 15 Months. “Richard Moody, chief economist at Regions Financial, said that the malaise that has loomed over the manufacturing sector for the better part of the past two years was going to continue, mainly because of uncertainty over policies in Washington after the election. That uncertainty could dissipate quickly, he added.”

Reuters: U.S. Manufacturing Drops to 15-Month Low in October. “The (New Orders Index) increased to 47.1 percent last month, from 46.1 percent in September. But output contracted further, likely because of the Boeing strike, which has had ripple effects on its suppliers. The Production Index fell to 46.2 percent from 49.8 percent in September.”

The Wall Street Journal: Treasury Yields Stage Strong Rebound. “The rebound in yields came despite other economic data released later in the morning that was also somewhat disappointing. Institute for Supply Management said Friday that its purchasing managers’ index of manufacturing activity was 46.5 percent in October, down from 47.2 percent in September.”

ISM’s Services PMI® will be unveiled on Tuesday, and the Hospital PMI® on Thursday. 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/Gerenme)

About the Author

Dan Zeiger

About the Author

Dan Zeiger is Senior Copy Editor/Writer for Inside Supply Management® magazine, covering topics, trends and issues relating to supply chain management.