The US manufacturing sector continued to shrink for the sixth consecutive month in September, following weak orders and declining employment. The Institute for Supply Management (ISM) reported a manufacturing index of 47.2, indicating contraction in the industry as any reading below 50 signals a downturn.
Although the decline in orders and output slowed compared to the previous month, both indicators remain in the contraction zone. The persistent drop in orders for the sixth consecutive month has limited production and lowered the ISM employment index. The ISM Manufacturing Business Survey Committee Chairman noted low demand and corporate hesitance to invest due to monetary policy and election uncertainties as contributing factors.
Thirteen industries experienced contraction, led by printing, plastics, rubber, and wood products, while five industries saw expansion. Weak demand, including from overseas clients, has eased price pressures on raw materials and inputs. The prices paid index dropped to 48.3, the largest decline since May 2023, and marked the first overall cost decrease this year.
Falling prices of raw materials like oil are expected to further reduce finished goods prices and help contain service inflation. This trend will likely keep Federal Reserve policymakers considering rate cuts to prevent labor market deterioration.
The survey was conducted before strikes at East Coast and Gulf Coast ports, which could escalate transportation and import costs. The work stoppage affected 36 ports, handling half of all US trade, causing an immediate halt to container and auto transportation.
The ISM manufacturing employment index fell to 43.9, shrinking for the fourth consecutive month. The latest non-farm employment report from the Bureau of Labor Statistics, set to be released soon, is anticipated to show another decline in factory employment. Recent data showed little change in manufacturing job vacancies in August.
Limited capital expenditures continue to be a hurdle for manufacturing, alongside a fragile export market. The ISM export orders index saw its largest contraction since January in the previous month. Additionally, inventories fell at their fastest pace this year, indicating that producers are maintaining low stock levels.
