US Factory Activity Shrinks the Most in a Decade

The ISM Manufacturing PMI in the US dropped to 47.8 in September 2019 from 49.1 in the previous month, missing market expectations of 50.1. The latest reading pointed to the steepest month of contraction in the manufacturing sector since June 2009, amid ongoing trade tensions with China.
ISM | Joana Ferreira | 10/1/2019 2:21:05 PM
The production index fell 2.2 points from a month earlier to 47.3, and the employment index dropped 1.1 points to 46.3. In addition, the inventories index slumped 3 points to 46.9, and the supplier deliveries index declined 0.3 points to 51.1.

Meanwhile, new orders continued to decline at a sharp rate (+0.1 points to 47.3) while the price deflation eased (+3.7 points to 49.7).

“Comments from the panel reflect a continuing decrease in business confidence. September was the second consecutive month of PMI® contraction, at a faster rate compared to August. Demand contracted, with the New Orders Index contracting at August levels, the Customers’ Inventories Index moving toward ‘about right’ territory and the Backlog of Orders Index contracting for the fifth straight month (and at a faster rate). The New Export Orders Index continued to contract strongly, a negative impact on the New Orders Index. Consumption (measured by the Production and Employment indexes) contracted at faster rates, again primarily driven by a lack of demand, contributing negative numbers (a combined 3.3-percentage point decrease) to the PMI® calculation. Inputs — expressed as supplier deliveries, inventories and imports — were again lower in September, due to inventory tightening for the fourth straight month. This resulted in a combined 3.3-percentage point decline in the Supplier Deliveries and Inventories indexes. Imports contraction slowed. Overall, inputs indicate (1) supply chains are meeting demand and (2) companies are continuing to closely match inventories to new orders. Prices decreased for the fourth consecutive month, but at a slower rate.

“Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019. Overall, sentiment this month remains cautious regarding near-term growth,” says Fiore.

Of the 18 manufacturing industries, three reported growth in September: Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Chemical Products. The 15 industries reporting contraction in September — in the following order — are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Wood Products; Electrical Equipment, Appliances & Components; Textile Mills; Paper Products; Fabricated Metal Products; Plastics & Rubber Products; Petroleum & Coal Products; Primary Metals; Transportation Equipment; Nonmetallic Mineral Products; Machinery; Furniture & Related Products; and Computer & Electronic Products."

US Factory Activity Shrinks the Most in a Decade