US Factory Gauge Contracts at Slowest Pace in Nearly a Year

A measure of US factory activity contracted in September by the least in nearly a year, offering hope that the worst may be over for the nation’s producers.

(Bloomberg) — A measure of US factory activity contracted in September by the least in nearly a year, offering hope that the worst may be over for the nation’s producers.

The Institute for Supply Management’s manufacturing gauge rose to 49, the highest since November, from 47.6 the month before, according to data released Monday.

While readings below 50 indicate contraction, the latest figure exceeded most forecasts in a Bloomberg survey of economists. After hitting a multi-year low in June, the index has advanced 3 points to mark the biggest three-month gain since March 2021.

The September index was bolstered by the strongest production growth since July 2022 as well as an expansion in factory employment. The group’s gauge of new orders, while still showing contraction, also rose to a more than one-year high.

The factory payrolls measure expanded for the first time in four months, allowing producers to make greater headway on order backlogs.

Producers are also finding relief in declining commodities prices. The group’s index of prices paid for materials dropped 4.6 points, the most in four months, to 43.8 in September.

Industry Breakdown

Eleven industries reported shrinking activity last month, led by printing, furniture, plastics and rubber, and paper products. Five expanded, including food and beverages, textiles and nonmetallic minerals, the ISM report showed.

Though the manufacturing sector has been in contraction territory for nearly a year, the pace of deterioration is easing. Consumer spending remains somewhat resilient in the face of high borrowing costs and lingering inflation. Moreover, recent government data showed business demand for equipment rebounded in August.

“Companies are still managing outputs appropriately as order softness continues, but the month-over-month PMI improvement in September is a clear positive,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement.

Select ISM Industry Comments…

“Orders and production remain steady, and we are maintaining a healthy backlog. Continued inflation and wage adjustments continue to drive prices up, although we should get some relief from the markets stabilizing.” — Transportation Equipment

“Cost increases are now generally isolated to specific commodities rather than blanket increases due to ‘inflation’.” — Food & Beverages

“Markets remain soft. Our customers have about-right inventory levels, but they paid more due to pandemic cost increases. Everyone is holding off on increasing inventories, hoping they can buy at lower costs.” — Apparel

“Overall, things continue to be very steady: Sales and revenue are as expected, and the supply environment has stabilized greatly versus 2021-22. Some things to watch include the Panama Canal (drought), U.S.-China relations, and the impact the UAW (United Auto Workers) strike could have on suppliers of ours who support automotive production.” — Miscellaneous Manufacturing

“A recession feels imminent. Money continues to be pushed into the bank markets, driving inflation rates really high. Most plants are buying less material or reducing consumption in the name of sustainability, as well as running at 80 percent of capacity. Prices of some products may increase for the upcoming winter weather.” — Petroleum & Coal Products

“Business conditions and market demand remain strong. We are projected to be at capacity in the next 12 months.” — Primary Metals

“New business development is coming onboard. However, many forecasts are set for the beginning of 2024. Hiring and retaining quality people is still a struggle.” — Textiles

Production growth may be sustained as companies make progress trimming inventories. A measure of customer stockpiles shrank at the fastest pace in three months, according to the ISM report. Factory inventories also contracted.

At the same time, a strike against the three largest US automakers risks slowing progress in the sector even as supply chains and prices continue to stabilize.

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