A recent report from the Institute for Supply Management (ISM) reveals that U.S. manufacturing activity saw an unexpected contraction at a quicker pace in October. The ISM's manufacturing Purchasing Managers Index (PMI) declined to 46.5 in October from 47.2 in September, falling short of economists' forecasts of 47.6. A reading below 50 signifies contraction, and this downturn has brought the PMI to its lowest point since July 2023, when it was also at 46.5.
Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee, noted that after breaking a 16-month trend of contraction with an expansion in March, the manufacturing sector has shrunk over the past seven months.
A significant factor in the decline of the headline index was the accelerated contraction in production, with the production index dropping to 46.2 in October from 49.8 in September. On a more positive note, the new orders index improved slightly to 47.1 in October from 46.1 in September, although it remains in contraction territory.
"Demand continues to be weak, as businesses hesitate to invest in capital and inventory due to uncertainties—such as a potential resurgence in inflation—regarding federal monetary policy in relation to the fiscal strategies proposed by both major political parties," explained Fiore.
The employment index marginally increased to 44.4 in October from 43.9 in September, yet it still indicates contraction for the fifth month running, following an expansion in May. Earlier in the day, the Labor Department reported a reduction of 47,000 manufacturing jobs in October, attributed partly to the Boeing machinists' strike.
Regarding inflation, the report highlighted that the prices index spiked to 54.8 in October from 48.3 in September, signaling a rise in raw material costs after a previous decline.
The ISM plans to release its report on U.S. service sector activity for October next Tuesday. Current economic forecasts suggest that the services PMI will decrease to 53.3 in October from 54.9 in September, yet a figure above 50 still reflects growth.