October manufacturing contracts
Economic activity in the manufacturing sector contracted in October for the seventh consecutive month and the 23rd time in the last 24 months, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.
The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee:
“The Manufacturing PMI registered 46.5% in October, 0.7 percentage point lower compared to the 47.2% recorded in September. This is the lowest Manufacturing PMI reading in 2024. The overall economy continued in expansion for the 54th month after one month of contraction in April 2020. (A Manufacturing PMI above 42.5 %, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index remained in contraction territory, registering 47.1 %, 1 percentage point higher than the 46.1% recorded in September. The October reading of the Production Index (46.2%) is 3.6 percentage points lower than September’s figure of 49.8%. The Prices Index returned to expansion (or ‘increasing’) territory, registering 54.8 %, up 6.5 percentage points compared to the reading of 48.3% in September. The Backlog of Orders Index registered 42.3 %, down 1.8 percentage points compared to the 44.1% recorded in September. The Employment Index registered 44.4 %, up 0.5 percentage point from September’s figure of 43.9%.
“The Supplier Deliveries Index indicated slowing deliveries, registering 52 %, 0.2 percentage point lower than the 52.2% recorded in September. (Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 42.6 %, down 1.3 percentage points compared to September’s reading of 43.9%.
“The New Export Orders Index reading of 45.5% is 0.2 percentage point higher than the 45.3% registered in September. The Imports Index remained in contraction territory in October, registering 48.3 %, the same reading as reported in September.”
Fiore continues, “U.S. manufacturing activity contracted again in October, and at a faster rate compared to last month. Demand continues to be weak, output declined, and inputs stayed accommodative. Demand slowing was reflected by the (1) New Orders Index remaining in contraction territory, (2) New Export Orders Index contracting moderately, (3) Backlog of Orders Index dropping further into strong contraction territory, and (4) Customers’ Inventories Index indicating customers’ inventories were ‘too low.’ (For more, see the Customers’ Inventories Index summary section.) Output (measured by the Production and Employment indexes) continued in contraction: Employment shrunk, but at a slower rate, while production moved further into contraction. Panelists cited continuing efforts by their companies to right-size workforces to levels consistent with forecasted demand. Inputs — defined as supplier deliveries, inventories, prices and imports — generally continued to accommodate future demand growth, with inventories returning to low levels and suppliers continuing to show marginal difficulty in meeting customer needs.
“Demand remains subdued, as companies continue to show an unwillingness to invest in capital and inventory due to concerns (for example, inflation resurgence) about federal monetary policy direction in light of the fiscal policies proposed by both major parties. Production execution eased in October, consistent with demand sluggishness. Suppliers continue to have capacity, with lead times improving and some shortages reappearing. Sixty-three% of manufacturing gross domestic product (GDP) contracted in October, down from 77% in September. The share of manufacturing sector GDP registering a composite PMI® calculation at or below 45% (a good barometer of overall manufacturing weakness) was 46% in October, a 5-percentage point increase compared to the 41% reported in September. Only two of the six largest manufacturing industries — Food, Beverage & Tobacco Products; and Computer & Electronic Products — expanded in October, compared to one in September,” says Fiore.
The five manufacturing industries reporting growth in October are: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Computer & Electronic Products; and Miscellaneous Manufacturing. The 11 industries reporting contraction in October — in the following order — are: Textile Mills; Printing & Related Support Activities; Transportation Equipment; Chemical Products; Electrical Equipment, Appliances & Components; Machinery; Primary Metals; Nonmetallic Mineral Products; Plastics & Rubber Products; Fabricated Metal Products; and Paper Products.
WHAT RESPONDENTS ARE SAYING
• “Right-sizing continues. Contingency plans have been formulated to anticipate trade policies that will impose tariffs on key materials.” [Chemical Products]
• “Market demand has significantly decreased in the second half of 2024 and is expected to be soft through the first quarter of 2025. Although inflation has stabilized and returned to historical levels, and interest rates are decreasing, there appears to be a general pessimism in the economy that is driving customers to be more restrictive in their capital expenditures, including investment in commercial vehicles. Uncertainty in the outcome of the upcoming election has resulted in several risk analysis studies to be prepared, particularly focused on the future of the electric vehicle (EV) migration and trade restrictions/penalties.” [Transportation Equipment]
• “Heavy volumes for October have been extended into November to cover our record-breaking sales volume for this quarter.” [Food, Beverage & Tobacco Products]
• “Business is picking up; outlook is optimistic, but not great.” [Computer & Electronic Products]
• “Sales have been very slow the past six months. Interestingly, though, inquiries are up more than 30% from a year ago. This indicates there is pent-up demand, but customers are skittish about national and global economic conditions. We are hearing directly from customers that they need to order equipment to satisfy their requirements but are going to keep projects as long as possible before pulling the trigger.” [Machinery]
• “Business levels remain depressed. It feels like a ‘wait and see’ environment regarding where the economy is heading; customers don't want to commit to inventory, which is resulting in lower order levels.” [Fabricated Metal Products]
• “Overall projections are that business will remain strong through the fourth quarter. Some order increases are starting, and a lot more projects are slated for the first quarter of 2025. Will demand be there to support it?” [Nonmetallic Mineral Products]
• “This has been an interesting fourth quarter already. The port strikes, hurricanes and election will all affect us in some way. 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. Components for green energy projects will be further delayed, but we don't expect the environmental mandates to be delayed.” [Paper Products]
• “The potential port strike sent ripple effects through our 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. The three recent hurricanes missed large manufacturing hubs on the Gulf Coast but have still caused minor delays.” [Petroleum & Coal Products]
• “The seasonal business cycle is as planned: Consumer confidence in building materials remains relatively strong, and expectations are for continued growth into 2025 due to reduced interest rates and the potential for further small cuts.” [Wood Products]
INDUSTRIAL SUPPLY MAGAZINE
The November/December issue of Industrial Supply magazine features an in-depth cover story about Kimball Midwest. Plus, we're featuring articles by contributing writers Dirk Beveridge, Frank Hurtte, and Mike Marks, as well as interviews with numerous product and distribution industry experts.
