–ISM: New Orders, Employment Indexes Slip Back into Contraction
–ISM: Firms Using Hiring Freezes, Attrition as They See Softer Demand in Future
–ISM’s Fiore: Overall Index Just Above Growth Line but May Contract Soon
By Max Sato
(MaceNews) – U.S. manufacturing activity growth showed clear signs of a slowdown in September after holding up in August and drifting lower in the previous two months as new orders and employment slipped into contraction, data from the Institute for Supply Management released Monday showed.
Companies are putting hiring plans on hold and not replacing workers when they quit as firms brace for a future drop in demand, according to ISM’s analysis.
The main index stayed just above the breakeven point of 50, indicating that the overall economy expanded for the 28th consecutive month, but the expansion streak may end soon.
“The U.S. manufacturing sector continues to expand, but at the lowest rate since the pandemic recovery began,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in statement. “Following four straight months of panelists’ companies reporting softening new orders rates, the September index reading reflects companies adjusting to potential future lower demand.”
The new orders index slumped 4.2 points to 47.1 in September after rebounding 3.3 points to 51.3 in August and posting contraction in the previous two months (48.0 in July and 49.2 in June). Those figures under 50 were the lowest since 32.3 recorded in May 2020. The production index continued showing growth, rising a slight 2 points to 50.6 in September from 50.4 in August, but it was lower than 53.5 in July.
The employment index slipped into contraction for the first time in three months, plunging 5.5 points to 48.7 in September after rising 4.3 points to 54.2 in August from 49.9 in July.
“I think we’ve got a little bit of slowdown here and I wouldn’t be surprised if we start going into contraction,” Fiore told reporters, adding he was hoping to see 34 to 35 months of an average manufacturing sector expansion cycle but that the possibility is low now.
“Significantly more panelists are using hiring freezes and attrition to lower medium to longer headcounts in anticipation of future output softening,” he told reporters, calling the move a clear shift from their patterns in recent months.
He also said in the statement: “Markedly absent from panelists’ comments was any large-scale mentioning of layoffs; this indicates companies are confident of near-term demand, so primary goals are managing medium-term head counts and supply chain inventories.”
“Business is flat to down due to inflation and interest rates. Hard to find and keep employees due to wage increases by competitors,” a manufacturer of fabricated metal products told ISM.
A machinery maker said: “Supply chain constraints on many items are still an issue; staffing on the production side continues to be a significant problem.”
“Quotes and orders still strong; however, we are not able to accept any new orders for shipment (for the rest of) 2022 due to motor and electronic component shortages,” said a firm in the miscellaneous manufacturing category.
Amid signs of slower global economic growth, the new export orders index contracted for the second month in a row, falling a further 1.6 points to 47.8 in September after slipping 3.2 points to 49.4 in August from July’s 52.6. It remained at the lowest since June 2020, when it rose to 47.6 from 39.5 the previous month.
“Concerns of global economic slowdown are growing, and (we are) experiencing some customers pulling back orders.” chemical products maker said.
On the upside, Fiore noted in the statement that month-over-month supplier delivery performance was the best since December 2019; prices growth slowed notably (with the index at 60 percent or lower) for the third consecutive month; and lead times continue to ease for capital equipment and production materials.
The supplier deliveries index “reached an appropriate tension level,” posting the fifth straight drop, down 2.7 points at 52.4 in September after slipping 0.1 point to 55.1 in August.
The inventories index rose 2.4 points to 55.5 in September after falling 4.2 points to 52.1 in August “as panelists’ companies continued to manage the total supply chain inventory.”
The prices index decreased for a sixth straight month, down 0.8 point at 51.7 after August’s 52.5, and is not far from contraction territory.