Factory Gauge Contracts at Slowest Pace in Nearly a Year
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A measure of U.S. factory activity contracted in September by the least in nearly a year, offering hope that the worst may be over for the nation’s producers.
The Institute for Supply Management’s manufacturing gauge rose to 49, the highest since November, from 47.6 the month before, according to data released Oct. 2.
While readings below 50 indicate contraction, the latest figure exceeded most forecasts in a Bloomberg survey of economists. After hitting a multiyear low in June, the index has advanced 3 points to mark the biggest three-month gain since March 2021.
The September index was bolstered by the strongest production growth since July 2022 as well as an expansion in factory employment. The group’s gauge of new orders, while still showing contraction, also rose to a more than one-year high.
Manufacturing @ISM® Report On Business®: U.S. factory activity is getting ever so closer to expansion, as the PMI® increased to 49% in September, with growth in production and #employment. The impact of the #UAWStrike is to be determined. https://t.co/4g993Z1035 #ISMPMI #economy — Institute for Supply Management (@ism) October 2, 2023
The factory payrolls measure expanded for the first time in four months, allowing producers to make greater headway on order backlogs.
Producers are also finding relief in declining commodities prices. The group’s index of prices paid for materials dropped 4.6 points, the most in four months, to 43.8 in September.
Eleven industries reported shrinking activity last month, led by printing, furniture, plastics and rubber, and paper products. Five expanded, including food and beverages, textiles and nonmetallic minerals, the ISM report showed.
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Though the manufacturing sector has been in contraction territory for nearly a year, the pace of deterioration is easing. Consumer spending remains somewhat resilient in the face of high borrowing costs and lingering inflation. Moreover, recent government data showed business demand for equipment rebounded in August.
“Companies are still managing outputs appropriately as order softness continues, but the month-over-month PMI improvement in September is a clear positive,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement.
Production growth may be sustained as companies make progress trimming inventories. A measure of customer stockpiles shrank at the fastest pace in three months, according to the ISM report. Factory inventories also contracted.
At the same time, a strike against the three largest U.S. automakers risks slowing progress in the sector even as supply chains and prices continue to stabilize.
