In September, The growth of U.S. manufacturing activity slowed to its weakest level in almost two and a half years as a result of falling new orders and a Federal Reserve that aggressively raised interest rates to curb inflation and chill demand.
- September’s manufacturing PMI drops 1.9 points to 50.9.
- New orders and a contract for employment measures
- Factories facing price pressure, and supply bottlenecks lessening
- In August, construction spending decreases by 0.7%.
Additionally, A gauge of manufacturing employment shrank last month for the fourth time this year, according to the Institute for Supply Management (ISM) report released on Monday. For the sixth consecutive month, a factory gate inflation index slowed down.
Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee, stated that “with medium- and long-term demand increasingly unclear, enterprises are now limiting head counts through hiring freezes and attrition to lower levels.” However, Fiore pointed out that businesses had not commented on widespread layoffs, which he claimed showed that “companies are confident about near-term demand.” Fears of a recession for next year have been increase by the Fed’s stricter monetary policy campaign, which has caused a significant stock market sell-off. According to a senior economist, “in many ways, this is the cooling economy the Fed would like to see.” However, it can simply be a reflection of a consumer shift away from commodities and toward services.
The manufacturing PMI for the ISM fell from 52.8 in August to 50.9 last month, the lowest figure since May 2020. According to ISM, the index’s decline “Reflects businesses responding to perhaps lower demand in the future.” 11.9% of the U.S. economy is made up of manufacturing, and a value above 50 implies expansion in this sector.
Construction Investment Decreased Due to Increase in US Policy Rates.
The index was expected to fall to 52.2. There was increase in nine manufacturing sectors, including machinery, vehicles, and computers and electronics. One of the seven industries reporting a contraction was the furniture and allied products sector, along with textile mills and wood products.
Since March, The U.S. central bank has increased its policy rate from close to zero to the current range of 3.00% to 3.25%, and this month it gave a hint that additional significant hikes would be coming this year. Spending on expensive, often financed items like furniture and appliances for the home is being restrained by the increasing borrowing prices. Additionally, construction has not been exempt. In a second report released on Monday by the Commerce Department, it was revealed that single-family homebuilding decreased 2.9% in August, causing construction investment to drop to its lowest level in 1-1/2 years.
Higher borrowing costs and weaker demand are the root causes, according to Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “The slight recession call remains valid.” Read More
Wall Street stocks were trading higher. In relation to a currency basket, the dollar decreased. Treasury prices increased.
EMPLOYMENT CONTRACTS, ORDERS.
“Production is constant, allowing reduction of backlog amid slightly softer demand,” said producers of transportation equipment. Businesses are “flat to down due to inflation and interest rates,” according to manufacturers of manufactured metal products.
Electrical appliance, equipment, and component manufacturers reported that “business is solid.”
The forward-looking new orders sub-index of the ISM survey dropped from 51.3 in August to 47.1 last month. Which is also the lowest result since May 2020. The index decreased for the third time in a row this year.
Along with declining European demand, a slowing Chinese economy, and a high currency, export orders also declined. Additionally, order backlogs are being reduced, and both manufacturer and customer inventories are getting close to normal levels.
While decreasing backlogs suggested that manufacturing would continue to slow, they were also a result of the supply chain’s relieving constraints. The ISM’s gauge of supplier deliveries decreased from 55.1 in August to 52.4, the lowest value since December 2019. A reading over 50% suggests that factory deliveries are moving more slowly.
There were conflicting opinions about supply. “Some commodities within the supply chain are starting to stabilise, while others are still creating interruption for production.” Claimed producers of electrical equipment, appliances, and components.
However, makers of machinery noted that “Staffing on the production side continues to be a substantial challenge” and that “supply chain restrictions on numerous items are still an issue.” Computer and electronic product manufacturers expressed similar sentiments. When they stated that “supply chain challenges for all electronic components and custom build-to-print materials are in short supply due to capacity and skilled labour limitations.“
The factory, Inflation pressures decreased further as a result of loosening supply networks.
Both Consumer and Producer Inflation Showed a Slowing Down.
From 52.5 in August, a gauge of prices paid by manufacturers fell to 51.7, the lowest figure since June 2020. The decline in commodity prices is a major factor in the downturn. August saw a slowing in both annual consumer and producer inflation, providing hope that prices had peaked.
Factory employment as measured by the ISM survey decreased from 54.2 in August to 48.7. Despite the index’s four contractions this year, manufacturing payrolls in the government’s carefully watched employment report, which have constantly increased, have been hard to anticipate.
Unemployment.
Despite a slowdown in job growth, there is still a high need for labour. At the end of July, there were 11.2 million vacant positions throughout the economy, meaning that there were two opportunities for every unemployed person. First-time unemployment benefit claims are still infrequent.
Isfar Munir, an economist at Citigroup in New York, stated. That workers “may have just chosen to leave manufacturing industries in favour of other types of jobs.”