ARKANSAS, Oct 2 (Future Headlines)- The Institute for Supply Management (ISM) has reported a positive trend in U.S. manufacturing for the third consecutive month, with September showcasing signs of recovery, bolstered employment figures, and a notable decrease in input prices. This encouraging data has bolstered economic analysts’ expectations of accelerated growth in the third quarter, defying concerns related to rising interest rates. A simultaneous report from the Commerce Department reveals robust construction spending in August, particularly in housing and manufacturing projects.
The ISM’s Manufacturing Purchasing Managers’ Index (PMI) reached 49.0 in September, marking the highest reading since November 2022 and signaling continued improvement in the manufacturing sector. While this signifies the 11th consecutive month of the PMI remaining below 50, indicative of a contracting manufacturing sector, it’s important to note that the index has edged above the 48.7 threshold that the ISM associates with overall economic expansion over time.
The ISM survey indicates that five manufacturing industries reported growth in September, including textile mills and primary metals. This growth demonstrates the resilience and adaptability of certain sectors within manufacturing. However, it’s worth noting that computer and electronic products, machinery, and electrical equipment, appliances, and components were among the 11 industries that reported contraction.
The comments from respondents in the ISM survey reflect a mixture of sentiments within the manufacturing landscape. Makers of transportation equipment reported steady orders and production, maintaining a healthy backlog. Manufacturers of miscellaneous goods expressed concerns about various factors, including the Panama Canal drought, U.S.-China relations, and supply chain disruptions due to the United Auto Workers strike. Nevertheless, they viewed overall conditions as stable. Apparel, leather, and allied product makers described their markets as soft. In contrast, primary metals producers reported strong business conditions and market demand, projecting they would reach full capacity in the next 12 months. Petroleum and coal products manufacturers expressed apprehensions about an imminent recession.
The forward-looking sub-indices in the ISM report provide additional insights into the manufacturing sector’s health. The new orders sub-index increased to 49.2 in September from 46.8 in August. This uptick in new orders has translated into accelerated production at factories, with the production index rising to 52.5 from 50.0 in the prior month.
While the ISM survey indicates positive momentum in manufacturing, it also highlights the importance of infrastructure investment. The average commitment lead time for capital expenditures increased by two days, reaching a total of 141 days in September. This suggests that the process of ordering, obtaining, and installing business equipment remains time-consuming. Infrastructure development and streamlining processes could help address these lead time challenges.
Although backlog orders saw a decrease, inventories at factories and their customers remained at notably low levels. This low inventory indicates the potential for increased future production. Furthermore, suppliers to manufacturers have consistently improved their delivery performance for the 12th straight month, contributing to the reduction in prices for factory inputs.
One of the most significant takeaways from the ISM report is the considerable decrease in prices paid by manufacturers for inputs. The survey’s measure of prices paid fell to 43.8 in September, down from 48.4 in August. This trend bodes well for disinflation in the manufacturing sector. However, it’s important to note that the ongoing strike by auto workers could impact motor vehicle prices. Additionally, rising energy prices could exert upward pressure on inflation, even as they support manufacturing activity.
The manufacturing sector experienced a notable improvement in employment, bouncing back from three-year lows recorded in July. The survey’s gauge of factory employment rose to 51.2 in September, up from 48.5 in August. Attrition remained the primary source of headcount reductions, but hiring freezes became more prevalent. This resurgence in employment is a positive sign for the labor market within the manufacturing industry.
In addition to the ISM report, the Commerce Department released data on construction spending in August, offering further insights into economic activity. Construction spending increased by 0.5% in August, following a 0.9% rise in July. The growth was primarily driven by investment in single- and multi-family housing. Notably, year-on-year spending on construction projects surged by 7.4% in August.
Private construction projects experienced a 0.5% increase, with residential construction contributing to a 0.6% rise, following a 1.6% increase in the prior month. Private non-residential structures, including factories, saw a 0.3% uptick in August. Manufacturing construction projects showed significant growth, with a 1.2% increase. This expansion aligns with the Biden administration’s efforts to revitalize semiconductor manufacturing in the United States.
These developments provide optimism for the economy’s trajectory, even amid concerns about higher interest rates. The ability to maintain steady growth, address supply chain disruptions, and invest in infrastructure will be key factors in averting a recession in the near term. As manufacturing plays a vital role in the U.S. economy, these positive indicators could have a ripple effect, contributing to broader economic stability and growth.
Writing by Sarah White