U.S. Manufacturing Overview – September

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. This, along with falling interest rates, suggests a potential rebound in activity in the coming months.

The Institute for Supply Management (ISM) reported that its manufacturing PMI was unchanged at 47.2 last month. A PMI reading below 50 indicates contraction in the manufacturing sector, which makes up 10.3% of the economy.

This marks the sixth consecutive month the PMI remained below the 50 threshold but above the 42.5 level that typically indicates economic expansion. However, the survey may have exaggerated manufacturing weaknesses, as hard data like factory production and durable goods orders show the sector moving sideways.

Recent GDP data indicated manufacturing output increased at a 2.6% annualized rate in Q2, up from 0.2% in Q1. Further gains are anticipated after the Federal Reserve cut interest rates last month for the first time since 2020, with expectations of two more cuts in November and December.

The ISM survey’s new orders sub-index rose to 46.1 from 44.6 in August, indicating a potential recovery, while the production sub-index increased to 49.8 from 44.8.

Manufacturers faced decreased cost pressures, though a port strike by International Longshoremen’s Association members could disrupt supply chains and raise input prices. The survey’s index for prices paid dropped to 48.3, the lowest since December 2023, from 54.0 in August. The gauge for supplier deliveries rose to 52.2 from 50.5; readings above 50 indicate slower deliveries.

Factory employment issues worsened, posing downside risks to manufacturing payrolls in September. The employment measure fell to 43.9 from 46.0 in August, remaining in contraction for four months as companies reported reducing headcounts through layoffs, attrition, and hiring freezes.

A Reuters survey predicts manufacturing payrolls to decrease by 5,000 jobs in September following a 24,000 drop in August. Overall nonfarm payrolls are estimated to have increased by 140,000 last month after a 142,000 rise in August. The government’s employment report is scheduled for release on Friday.