Despite a slight decline from August, manufacturing output in September remained on the positive side of growth, according to the latest edition of the Manufacturing Report on Business released today by the Institute for Supply Management (ISM).
The report’s key measure, the PMI, was 50.9 (a reading of 50 or more indicates growth), following back-to-back readings of 52.8 in July and August, rising, at a slower pace, for the 28th consecutive month, in line with overall economic growth also for the 28th consecutive month. This is the lowest PMI reading of May 2020, when it came in at 43.5.
September’s PMI is 5.3% below the 12-month average of 56.2, with October 2021’s 60.8 and September’s 50.9 marking the high and low values respectively for this period.
The ISM reported that nine manufacturing sectors advanced in September, including: non-metallic mineral products; Machinery; Plastic and rubber products; miscellaneous manufacturing; Clothing, leather and related products; transportation equipment; Food, beverages and tobacco products; Computer and electronic products; and electrical equipment, devices and components. The seven industries experiencing contraction in September compared to August are: furniture and related products; Textile factories; wood products; printing and related support activities; paper products; Chemical products; and fabricated metal products.
Key report metrics were mixed in September, including:
- New orders, commonly referred to as the driving force behind manufacturing, fell 4.2% to 47.1, contracting after growth in August, which followed two months of contraction as five manufacturing sectors recorded growth;
- Output, at 50.6, rose 0.2% from August, growing at a faster pace for the 28th straight month as eight manufacturing sectors recorded growth;
- Employment, at 48.7, fell 5.5% from August, after a month of growth, which was preceded by a three-month period of contraction, with six manufacturing sectors recording growth;
- Shipments from suppliers, at 52.4 (a reading above 50 indicates contraction), lagged 2.7% from August, slowing, at a slower pace, for the 79th month in a row, with 10 manufacturing sectors reporting declines. slower deliveries from suppliers in September;
- The order book, at 50.9, was down 2.1% from August, while increasing, at a slower pace, for the 27th consecutive month;
- Inventories, at 56.5, rose 2.4% from August, rising at a faster pace for the 14th consecutive month, customer inventories, at 41.6, up 2.7% from August. compared to August, moving “too low”, at a slower pace. , for the 72nd consecutive month; and
- Prices, at 51.7, were down 0.8% from August, rising, at a slower pace, for the 28th straight month
Comments submitted by ISM member respondents highlighted a variety of themes, including: inventory issues; concerns about declining demand; and supply chain issues.
“Supply chain issues for all electronic components and custom build materials are rare due to capacity and skilled labor shortages,” said one respondent from Computer and Electronics Products. “The cost of energy continues to have a negative impact on the cost of freight.”
A chemical shipper has highlighted how worries about the global economic downturn are growing, and his company is seeing some customers withdraw their orders.
“The U.S. manufacturing sector continues to expand, but at the slowest pace since the pandemic recovery began,” Tim Fiore, chair of the ISM Business Survey Committee, wrote in the report. “After four straight months in which panelists’ businesses reported slowing new order rates, the September index reflects businesses adjusting to a potential drop in future demand. Demand eased, with the new orders index returning to contraction, the new export orders index contracting for a second consecutive month, the customer inventory index remaining at a low level but also close as it has been to a “about right” reading since the start of the pandemic and the backlog index is approaching contraction. Consumption (measured by the production and employment indices) declined over the period, with a combined negative impact of 5.3 percentage points on the calculation of the manufacturing PMI. The employment index returned to contraction after a month of expansion and the production index rose by 0.2 percentage points, remaining in growth territory, but at a modest level. Many companies on the Business Survey Committee panelists are now managing headcount by freezing hiring and attriting at lower levels as medium- and long-term demand is more uncertain. Inputs, defined as supplier shipments, inventories, prices and imports, supported growth. The Supplier Shipments Index reached an appropriate level of stress and the Inventory Index rose as the panelists’ businesses continued to manage total supply chain inventory. The price index fell for a sixth straight month and is not far from contraction territory, and the import index rose slightly.
In a previous interview, Fiore said that for the rest of 2022 he expects the PMI to be between 51 and 55.
“I don’t see anything more than that,” he said. “Aside from a hurricane that drives up the number of supplier deliveries, I don’t see it going past 55. I don’t think the job numbers will grow much more than where it is. If it stays in the current range, it will be good. We hope that the number of productions will return to the range of 55 and that new orders will be around 52 or 53. That’s where we should be. It seems to be slipping The imbalance between supply and demand is being corrected.
About the Author
Jeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics management, Modern material handlingand Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine where he covers all aspects of the supply chain, logistics, freight forwarding and material handling industries on a daily basis. Contact Jeff Berman