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Economy in Brief

U.S. ISM Manufacturing Index Declines Sharply in September
by Tom Moeller  October 3, 2022

• Composite index falls to lowest level since recession's end.

• New orders & employment decline.

• Pricing power continues to weaken.

Factory sector activity remains under pressure. The Composite Index of factory sector activity reported by the Institute for Supply Management (ISM) fell during September to 50.9 from an unrevised 52.8 in August. The index remained below the March 2021 peak of 63.7 and stood at the lowest level since May 2020. A reading of 52.0 had been expected in the Action Economics Forecast Survey.

The ISM stated, "Of the six biggest manufacturing industries, four — Machinery; Transportation Equipment; Food, Beverage & Tobacco Products; and Computer & Electronic Products — registered moderate-to-strong growth in September. Industries reporting contraction in September compared to August, in the following order are: Furniture & Related Products; Textile Mills; Wood Products; Printing & Related Support Activities; Paper Products; Chemical Products; and Fabricated Metal Products."

Reversing its August improvement, the new orders index fell to 47.1 last month from 51.3 and stood at the lowest level since May 2020. It remained down from a high of 67.4 in December 2020, with orders contracting for the third month in the last four. A lessened 16.0% (NSA) of industries reported an increase in new orders while a higher 21.2% reported a decline. The employment reading dropped to 48.7 last month from 54.2 in August. Remaining below 50, it also indicated a decline in employment for the fourth month in the last five. A lessened 17.5% of industries reported more hiring while a greatly increased 22.2% reported a decline. Also falling, the supplier delivery index weakened to 52.4 from 55.1 in August and indicated the quickest delivery speeds since December 2019. It stood below the high of 78.8 in May of last year.

Working higher, the inventories index rose to 55.5 and reversed most of their deterioration to 53.1 in August. The production series edged higher to 50.6 last month from 50.4 in August. A fairly steady 17.5% of respondents reported higher production while an increased 18.2% reported a decline.

Pricing power in the factory sector continued to weaken during September. The prices index declined to 51.7 (NSA) from 52.5 in August. It remained the lowest reading since June 2020 and down from a high of 92.1 in June 2021. A greatly lessened 31.4% of respondents reported higher prices while a significantly increased 28.1% reported price declines, compared to virtually none this past March.

In other series, the export reading weakened to 47.8 last month from 49.4 in August and remained below the reading of 57.1 in February. A greatly lessened 9.4% of respondents reported higher exports while the percentage reporting lower exports surged to 13.9%. That was increased from 2.7% in February. The import measure was little changed at 52.6. It remained above a low of 48.7 in May. The orders backlog measure fell sharply to 50.9 and remained down from a high of 70.6 in May of last year.

The ISM figures are based on responses from over 400 manufacturing purchasing executives from 20 industries, which correspond to their contribution to GDP in 50 states. These data are diffusion indexes where a reading above 50 indicates expansion. The figures from the Institute for Supply Management can be found in Haver's USECON database; further detail is found in the SURVEYS database. The expectations number is available in Haver's AS1REPNA database.

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