US October ISM Manufacturing in Contraction for 7th Straight Month as New Orders Remain Sluggish amid Jitters Over Potentially Inflationary Economic Policy Post Election

–ISM Manufacturing Index at 46.5 vs. 47.2 in September, Below Median Forecast of 47.6
–ISM’s Fiore: ISM Index Likely to Pick Up Above Neutral Line of 50 in February 2025
–Fiore: Hurricanes Had Temporary, Limited Impact, Hampering Some Output, Lifting Costs
–Fiore: Right-Sizing Workforce Across Industries Continues

By Max Sato

(MaceNews) – U.S. manufacturing activity was in contraction for a seventh straight month in October, and the pace of decline unexpectedly accelerated, as firms remain reluctant to invest in new capacity on concerns that federal fiscal policy could be inflationary whichever major party wins the Nov. 5 election, the latest monthly data from the Institute for Supply Management showed Friday.

The sector index compiled by the ISM, which indicates general direction, fell to 46.5 in October after being flat at 47.2 in September and edging up 0.4 point to 47.2 in August. The latest reading came in well below the median economist forecast of 47.6.

“Demand remains subdued, as companies showed an unwillingness to invest in capital and inventory,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement, repeating his recent assessment. Firms are concerned that fiscal policies proposed by both the Democrats and Republicans could ignite inflation and make it “a lot harder” for the Federal Reserve to guide inflation around its 2% target while keeping the economy from slumping, he told reporters.

Looking ahead, Fiore projected that the ISM would pop above the crucial 50 mark in February 2025, by which time companies should be able to assess how inflationary the new administration’s economic policy would be. He reminded that the ISM index tends to lead conditions in the sector by six to nine months.

It was difficult to determine how much the recent hurricanes dampened overall manufacturing activity in October but they apparently had only temporary, limited effects, hampering some production and pushing up costs, he said. An uptick in the prices paid subindex is a “blip” caused by disrupted transportation and does not reflect economic fundamentals, he stressed.

“The port strikes, hurricanes and election will all affect us in some way,” a manufacturer of paper products told the ISM. “Our industry is energy intensive, so our largest concern is the national and state mandates toward electrification.”

“Electrical components were already in short supply, and with the substation and power line damages, we expect the electrical supply chain will be even worse,” the firm said.

A company in the petroleum and coal products category said the potential port strike sent ripple effects through the industry. “We have several large imports occurring in January, which created anxiety around critical components being delivered on time for a large, planned capital project,” it said. “The three recent hurricanes missed large manufacturing hubs on the Gulf Coast but have still caused minor delays.”

“We are still in a slowdown period,” Fiore said, but also noted that the sector is “well away from a serious recession.” The ISM index has averaged 47.4 in the latest 25-month period (from October 2022, when the index slipped to the neutral line of 50 from 50.8 the previous month), compared to 44.2 during the 18-month Great Recession that spanned from February 2028 (48.8) until July 2009 (49.7), he said.

This is the longest sectorial recession since the 25-month downturn that lasted from May 1989 (49.3) until May 1991 (44.5), ISM data shows.

Among the five subindexes that directly factor into the manufacturing PMI, the new orders index contracted in October for the seventh consecutive month, registering 47.1, an increase of 1.0 point compared to September figure of 46.1. It hasn’t indicated consistent growth since a 24-month streak of expansion ended in May 2022. The production index dipped 3.6 points to 46.2 after rising to 49.8 in September from 44.8 in August, which was the lowest since 34.2 in May 2020, when world demand plunged at the initial phase of the pandemic.

The employment index stood at 44.4, up 0.5 point from 43.9 in September. “Respondents’ companies are continuing to reduce head counts through layoffs, attrition and hiring freezes,” Fiore said in the October report, adding the 1-to-3 ratio of hiring versus staff reduction comments, doubling last month’s ratio in favor of the latter. “Right-sizing the workforce across industries continues.”

The supplier deliveries index fell 0.2 point to 52.0 after rising 1.7 points to 52.2. This is the only ISM subindex that is inversed; a reading of above 50 indicates slower deliveries. Companies continue to rely on their suppliers to manage purchased material inventories, Fiore said.

The manufacturing inventories index stood at 42.6, down 1.3 points from 43.9 the previous month. It has remained under the neutral line of 50 for the past 21 months except in August 2024.

Among other subindexes, the prices paid index was at 54.8, up 6.5 points from the September reading of 48.3. The increase was led by energy and transportation costs, which was partially offset by weakness in the steel markets.

The manufacturing sector is in the sixth contracting phase in the past 20 years. Previously, the ISM manufacturing PMI posted contraction just before the pandemic hit the global economy, from August to December 2019, and from March to May 2020. The deepest slump in the past two decades was recorded from September 2008 until July 2009 (the bottom was 34.5 in December 2008) triggered by the U.S. credit crisis.