Economists expected the ISM^® manufacturing PMI^® to hold steady at 49.0. Instead, it went into significant contraction with a steep drop in employment. Image and excerpts by permission and courtesy of the Institute for Supply Management Manufacturing ISM Contracts 12 MonthsPlease consider the ISM Manufacturing Report for October 2023.

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 U.S. manufacturing sector contracted in October, as the Manufacturing PMI^® registered 46.7 percent, 2.3 percentage points lower than the reading of 49 percent recorded in September. “This is the 12th month of contraction. Of the five subindexes that directly factor into the Manufacturing PMI^®, only one (the Production Index) is in expansion territory, down from two in September. The New Orders Index logged its 14th month in contraction territory, and at a faster rate in October. Of the six biggest manufacturing industries, one — Food, Beverage & Tobacco Products — registered growth in October,” says Fiore. A reading above 50 percent indicates that the manufacturing sector is generally expanding; below 50 percent indicates that it is generally contracting.

A Manufacturing PMI^® above 48.7 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the October Manufacturing PMI^® indicates the overall economy contracted after one month of growth preceded by nine consecutive months of contraction and 30 months of expansion from June 2020 to November 2022. “The past relationship between the Manufacturing PMI^® and the overall economy indicates that the October reading (46.7 percent) corresponds to a change of minus-0.7 percent in real gross domestic product (GDP) on an annualized basis,” says Fiore.

 New Orders

ISM^®’s New Orders Index contracted for the 14th consecutive month in October, registering 45.5 percent, a decrease of 3.7 percentage points compared to September’s reading of 49.2 percent. “Of the six largest manufacturing sectors, only Transportation Equipment reported increased new orders. New order levels contracted at a faster rate compared to September as a result of sluggishness in three capital-focused industries (Computer & Electronic Products; Machinery; and Fabricated Metal Products) that are among the seven biggest by share of manufacturing GDP,” says Fiore. A New Orders Index above 52.7 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

 Employment

ISM^®’s Employment Index registered 46.8 percent in October, 4.4 percentage points lower than the September reading of 51.2 percent. “The index indicated employment contracted in October after one month of expansion and three months of contraction before that. Of the six big manufacturing sectors, three (Machinery; Transportation Equipment; and Food, Beverage & Tobacco Products) expanded. Labor management sentiment at Business Survey Committee respondents’ companies continues to indicate a slowdown in hiring and, in October, an increase in staff reduction activity. Attrition, freezes and layoffs to reduce head counts increased during the period, with layoffs the primary tool, indicating a more urgent need to reduce staffing,” says Fiore. An Employment Index above 50.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

 Prices

The ISM^® Prices Index registered 45.1 percent, 1.3 percentage points higher compared to the September reading of 43.8 percent, indicating raw materials prices decreased in October for the sixth consecutive month. The index has been in contraction (or “decreasing”) territory since May, but a higher reading compared to September indicated a slower rate of price decreases. “Panelists’ comments indicate that buyers and suppliers continue to aggressively negotiate price levels for 2024, with commodity markets remaining volatile. Recent increases in energy markets primarily impacted the plastics markets in October. None of the top six manufacturing industries reported price increases in October. Eighty-nine percent of panelists’ companies reported ‘same’ or ‘lower’ prices in October, compared to 87 percent in September,” says Fiore. A Prices Index above 52.9 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

 Backlog of Orders

ISM^®’s Backlog of Orders Index registered 42.2 percent, a 0.2-percentage point decrease compared to September’s reading of 42.4 percent, indicating order backlogs contracted for the 13th consecutive month (and at a faster rate in October) after a 27-month period of expansion. Of the six largest manufacturing sectors, two (Food, Beverage & Tobacco Products; and Transportation Equipment) expanded order backlogs in October. “The index remains in strong contraction as production rates and new order levels continue to have a negative effect on backlogs,” says Fiore.

 New Export Orders

ISM^®’s New Export Orders Index registered 49.4 percent in October, 2 percentage points higher than the September reading of 47.4 percent. “The New Export Orders Index indicated that export orders contracted for the fifth month in a row in October; the index has shown weak performance for the last 15 months. Comments continue to note this weakness, but panelists indicate that trade appears to be improving,” says Fiore.

 Inflation Reduction Act and UAW Strike in PlayI suspect the transportation equipment expansion is related to Biden’s ridiculously named Inflation Reduction Act (IRA). Note that transportation backlogs increased.Some of the drop in employment is likely related to the UAW strike, now settled. Next month’s numbers may be more telling but not all of this is related to the strike. Telling StatisticArguably, the most telling statistic is that eighty-nine percent of panelists’ companies reported ‘same’ or ‘lower’ prices in October.Overall weakness in prices can be attributed to falling demand, not strikes, And it’s despite artificial demand spurred by the Inflation Reduction Act.Falling prices will be welcomed by the Fed. Wake Up Mr. President, Consumers Don’t Want EVs Despite subsidies, EVs are piling up on dealer lots. Prius hybrids have a 1-week supply. The Mustang Mach-E SUV has a 3 1/2 month supply.For discussion, please see Wake Up Mr. President, Consumers Want Hybrids, Not EVs. An Epic Battle Between Ford and GM Over BatteriesOn September 30, I noted An Epic Battle: Ford to Use China’s Battery Technology, GM Wants it Blocked

In a battle between GM and Ford, $7,500 in tax credits are at stake depending on Biden’s definition of “foreign entity of concern.” The exclusion aims to reduce US reliance on Chinese batteries and materials to make them.

What About Consumer Concerns?

Lost in the battle over “foreign entity of concern” ought to be the concern “how many people don’t want EVs crammed down their throats?”

No one is taking legitimate consumer concerns like price, insurance, number of reliable chargers, charging times, inflation, and even hurricane evacuations into proper consideration.

 Biden’s Self-Made DilemmaBiden is guaranteed to upset someone. That’s what happens when you interfere in the free markets, taking sides.Congressional members from Michigan have lined up behind GM. So did Senator Joe Manchin.The infrastructure isn’t ready in either case, and consumers aren’t either.More By This Author:Case-Shiller Home Prices Climb Another One Percent As Bubble Expands FurtherPeople Are Paid More To Work Less. This Explains Job Shortages And Productivity Initial GDPNow Forecast for 2023 Q4