U.S. Manufacturing Sector Update

WASHINGTON (Reuters) – U.S. manufacturing held steady at weaker levels in September, but new orders improved and prices paid for inputs declined to a nine-month low, indicating potential recovery.

The Institute for Supply Management (ISM) reported that its manufacturing PMI remained unchanged at 47.2, marking the sixth consecutive month below the 50 threshold that indicates contraction. However, the PMI is above the 42.5 level that indicates overall economic expansion over time.

Despite the PMI's stagnant indication, actual data, including factory production and durable goods orders, suggests manufacturing is moving sideways. GDP data revealed a 2.6% annualized increase in manufacturing output for Q2, up from a mere 0.2% in Q1. Future improvements could follow, especially after the Federal Reserve's recent interest rate cuts, expected to continue in November and December.

The ISM's new orders sub-index rose to 46.1 from 44.6, while the output sub-index improved to 49.8 from 44.8. Low cost pressures were noted, although a port strike by International Longshoremen's Association members could disrupt supply chains, elevating input costs.

Prices paid by manufacturers decreased to 48.3, the lowest since December 2023, down from 54.0 in August, and supplier deliveries increased to 52.2.

However, factory employment declined further, a potential risk to payrolls, with the employment measure dropping to 43.9 from 46.0. The index has remained below 50 for four months, with companies reporting layoffs, attrition, and hiring freezes.

A Reuters poll anticipated a drop in manufacturing payrolls by 5,000 jobs for September, following a 24,000 decrease in August, although overall nonfarm payrolls were expected to have increased by 140,000.

The government's employment report is scheduled for release on Friday.