According to ISM, manufacturing activity in the United States slowed in September for the first time in almost two and a half years.
On November 4, 2019, autonomous robots build an X model SUV at the BMW production facility in Greer, South Carolina, USA. Image Credit : REUTERS/Charles Mostoller
Manufacturing activity in the United States increased at its weakest rate in over two and a half years in September, as new orders fell, possibly as increasing interest rates to curb inflation chilled demand for goods.
The Institute for Supply Management (ISM) said on Monday that its manufacturing PMI fell to 50.9 this month from 52.8 in August, the lowest value since May 2020.
A rating above 50 suggests that manufacturing, which accounts for 11.9% of the US GDP, is expanding. Reuters polled economists, who predicted the index would fall to 52.3.
Some of the industrial slowdown can be attributed to the shift in consumer expenditure from products to services. According to government figures released last Friday, expenditure on long-lasting manufactured products hardly increased in August, while spending on services increased.
Since March, the Federal Reserve has raised its policy rate from near zero to the current range of 3.00% to 3.25%, and last month hinted that more significant hikes were on the way this year.
Higher borrowing rates are reducing expenditure on large-ticket items such as household appliances and furnishings, which are often purchased on credit.
The forward-looking new orders sub-index of the ISM survey fell to 47.1 last month, the lowest value since May 2020, from 51.3 in August. It was the third time this year that the index fell. Order backlogs are also being reduced. While this indicated a further slowdown in manufacturing, it was partly due to the removal of bottlenecks in the supply chain.
The ISM's index of supplier deliveries slipped to 52.4 in September, down from 55.1 in August. A value of more than 50% implies that supplies to manufacturers are taking longer.
As supply chains loosened, factory gate inflation pressures continued to fall.
Manufacturers' prices paid fell to 51.7, the lowest number since June 2020, from 52.5 in August. Commodity price declines are driving the ongoing slump. In August, annual consumer and producer inflation slowed, bolstering hopes that prices had peaked.
The ISM survey's gauge of manufacturing employment fell to 48.7 in September, down from a five-month high of 54.2 in August. It was the fourth time this year that the index fell. Despite the gyrations in the ISM employment measure, the index has been a poor predictor of manufacturing payrolls in the government's carefully watched jobs report, which have continuously climbed.
Despite slowing employment growth, there is still a high need for people. At the end of July, the economy had 11.2 million unfilled positions, with two job opportunities for every jobless person.
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