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U.S. manufacturing activity cooled in September but remained well within expansion territory for the fourth straight month. The Institute for Supply Management’s PMI slipped to 55.4, or 0.6 percent, from 56 in August as the forward-looking new orders index declined. Any reading above 50 indicates growth.
New orders decreased to 60.2 from a reading of 67.6 in August – the highest since January 2004. At the same time, factory backlog increased and customer inventory levels declined. “Shelves are empty and backlog continues to be strong,” said Tim Fiore, chair of the ISM’s manufacturing business survey committee. “This report exceeded expectations.”
After the coronavirus pandemic brought manufacturing activity to historic lows, the sector continues its recovery, Fiore said. Survey committee members reported that their companies and suppliers continue to operate in reconfigured factories and are becoming more proficient at maintaining output. U.S. manufacturing employment ticked up in September.
Source: Institute for Supply Management
The ISM’s production Index registered 61 percent, down 2.3 percentage points from August’s 63.3 percent. Backlog reached 55.2 percent; 0.6 percent higher than the August reading of 54.6. Factory employment increased by 3.2 percent to 49.6. ”Employment is right on the brink of expansion territory,” said Fiore, adding August and September were the first two months of full reopening. "We were interested in seeing what those numbers were and if the trend continued."
It has, but to say that there are headwinds for manufacturing is an understatement. Since the end of July, wildfires and hurricanes have constrained inputs (supplier deliveries). Component lead times from China remain stretched, said an electronics executive. The biggest concerns, said Fiore, are with the airline industry and the end of benefits from the U.S. CARES Act.
“The slowdown in manufacturing activity last month supports views that the recovery from the Covid-19 recession is losing steam as government money to help businesses and millions of unemployed runs out. In addition, new coronavirus cases are rising and infections are expected to accelerate in the fall,” according to Reuters.
The travel and leisure industry has been severely damaged from the coronavirus outbreak and demand for new aircraft has dropped. Airlines have already announced layoffs as have aircraft factories. Now that the government stimulus program is winding down, consumer demand is grinding to a halt. “There are a lot of conversations going on,” said Fiore, “but no fiscal policy.”
Manufacturers remain optimistic, however. Sentiment among ISM panelists was positive --2.3 positive comments for every cautious comment -- an improvement compared with August. Demand expanded, with new order growth supported by a moderate expansion in the new export order index. Customer inventories are at their lowest level since June 2010; a positive sign for future production.
Backlog expanded faster than in previous months, the ISM reported, and consumption (measured by the production and employment indexes) contributed positively to the PMI. Inputs — expressed as supplier deliveries, inventories and imports — continued to indicate input-driven constraints but at slower rates compared to August. Overall, inputs improved compared to August and contributed positively to the PMI.
“Manufacturing performed well in the month with demand, consumption and inputs registering growth indicative of a normal expansion cycle. While certain industry sectors are experiencing difficulties that will continue in the near term, the manufacturing community as a whole has learned to conduct business effectively and deal with the variables imposed by the Covid-19 pandemic,” said Fiore.
