U.S. manufacturing activity contracted at a slower rate in September, with the index for overall business conditions rising to its highest level since November 2022, according to the latest survey of purchasing executives from the Institute for Supply Management.
Executive Summary
• The U.S. manufacturing sector contracted for the 11th consecutive month in September, but at a slower rate than in August, according to the ISM.
• The Manufacturing PMI ® , a composite index of five key indicators, rose to 49 percent in September, up from 47.6 percent in August,
• Of the 18 manufacturing industries surveyed, only five reported growth in September, led by Nonmetallic Mineral Products and Food, Beverage & Tobacco Products. The industries reporting contraction included Transportation Equipment, Chemical Products and Computer & Electronic Products.
• The report cited weak demand, trade tensions, labor shortages and supply chain disruptions as some of the challenges facing the manufacturing sector. However, it also noted some signs of improvement and optimism for the fourth quarter.
U.S. Manufacturing Shows Signs of Recovery in September
The ISM reports its index of manufacturing activity rose 1.4%, nearing an expansionary level of 49% (A reading above 50 percent indicates expansion, while a reading below 50 percent indicates contraction).
The report is based on a survey of purchasing and supply executives from 18 different manufacturing industries, who provide data on various indicators such as new orders, production, employment, supplier deliveries, inventories, prices, backlog of orders, new export orders and imports.
The ISM reports demand in the sector, while still in contraction, continued on an upward trajectory in September, with the New Orders index climbing 2.4% to a reading of 49.2% This follows a 1.7% increase in July.
Output, while still in contraction as well, also improved over the month, surging 2.5% to a reading of 52.5%. Employment also moved back into expansion following three months of contraction, rising 2.7% in August to 51.2%.
The New Export Orders Index rose slightly to 47.4 percent but remained in contraction territory for the fourth month in a row. The Backlog of Orders Index declined by 1.7 percentage points to 42.4 percent, indicating a faster rate of contraction.
The input side of the sector continued to accommodate future demand growth in September, as the Supplier Deliveries Index decreased by 2.2 percentage points to 46.4 percent, indicating faster deliveries for the 12th straight month. The Inventories Index increased by 1.8 percentage points to 45.8 percent, but remained in contraction territory for the seventh consecutive month8. The Prices Index decreased by 4.6 percentage points to 43.8 percent, indicating a return to price reductions after a brief pause in August.
Said Timothy Fiore, Chairman of the ISM, “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.” Another sign of optimism Fiore stated, was the share of sector GDP reading. “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.
Related: How Outsourced Prospecting Can Help Your Manufacturing Business Survive an Uncertain Economy
What Manufacturers Are Saying About Business Conditions
Manufacturers from diverse industries provided insights in this month's report, highlighting the evolving supply chain dynamics, increased customer involvement in project initiation and cost reduction efforts, and the persistent challenge of inflationary pressures. Some sectors report steady operations with cautious optimism, while others grapple with uncertainty, anticipating a potential recession amid soaring inflation rates.
“Overall, things continue to be very steady,” said one executive in miscellaneous manufacturing, “Sales and revenue are as expected, and the supply environment has stabilized greatly 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.” [Miscellaneous Manufacturing]
Another respondent in the computer & electronic products sector said, “In the evolving supply chain environment, 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.”
While another in the chemical products industry had this to say, ““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.”
“Business conditions and market demand remain strong. We are projected to be at capacity in the next 12 months,” said an executive in primary metals, while another in food production stated “Cost increases are now generally isolated to specific commodities rather than blanket increases due to ‘inflation.”
Another respondent in petroleum and coal products had a less rosy view, stating, “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 percent of capacity. Prices of some products may increase for the upcoming winter weather.”
Similar sentiments were reflected in this comment from an executive in apparel, leather & allied products, “Markets remain soft. Our customers have about-right inventory levels, but they paid more due to pandemic cost increases. Everyone is holding off on increasing inventories, hoping they can buy at lower costs.”
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