U.S. manufacturing activity fell sharply in September, hitting a level not seen since 2009, according to the Institute for Supply Management’s September survey of manufacturing executives.
Today we’re going to take a look at some key insights from the ISM’s survey, including direct comments provided by U.S. manufacturing executives.
Industrial activity contracted for the first time in August, falling below the 50% mark that indicates the sector is shrinking rather than growing. U.S. manufacturing activity now stands at 47.8%, down 1.3% from August’s reading of 49.1%.
New orders, production and employment have all contracted, according to the ISM, while prices have decreased and both exports and imports are in contraction territory.
Said Timothy Fiore, Chairman of the ISM: “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.”
Responses from August’s survey describe a climate of sluggish business conditions and uncertainty over tariffs, while slowing auto sales has caused a ripple effect across automotive supply chains.
Fiore continued: “Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019. Overall, sentiment remains cautious regarding near-term growth.
Of eighteen industries, just three reported growth in September, compared to nine in August. Growth was seen only in miscellaneous manufacturing; food, beverage & tobacco products; and chemical products.
Contraction was sharpest in apparel, leather & allied products; printing & related support activities; wood products; electrical equipment, appliances & components; and textile mills.
What U.S. Manufacturers Are Saying:
The ISM’s report included several responses from manufacturing executives, most conveying a gloomier mood than that found in previous months’ surveys.
Said one respondent in the fabricated metals sector: “General market is slowing even more than a normal fourth-quarter slowdown.”
Another in the chemical products industry noted: “While business is strong, there is an undercurrent of fear and alarm regarding the trade wars and a potential recession.”
Related: What U.S. Manufacturers Were Saying About Tariffs in 1930
Said another in the food beverage and tobacco products industry: “Chinese tariffs going up are hurting our business. Most of the materials are not made in the U.S. and made only in China.”
Some manufacturers even mentioned layoffs – a rarity in recent ISM reports. Said a respondent in the plastics & rubber sector: “We have seen a reduction in sales orders and, therefore, a lower demand for products we order. We have also reduced our workforce by 10 percent.”
A slight optimism persisted in some of the manufacturers’ comments. Said an executive in the transportation equipment industry: “Business outlook remains cautious. Orders seem to be decreasing, but luckily not as sharp of a decrease as we were expecting.”
New Orders Ease
The ISM’s New Orders Index held steady in September, now at a contractionary reading of 47.3%, up 0.1% in September.
The ISM reports August 2019 represented the first time its New Orders Index orders fell into contraction since December of 2015.
Says Fiore: “Aside from last month, this is the lowest reading since June 2012, when the New Orders Index registered 47.2%.’
Only three of eighteen industries reported growth. Contraction was sharpest in apparel, leather & allied products; textile mills; and wood products.
Manufacturing Production Sinks
The ISM’s Production Index fell sharply in September, down 2.2% to its current reading of 47.3%. This is the second straight month manufacturing production has contracted, with the index falling to a reading of 49.5% last month.
Apart from a surprise 2.8% increase in June, the Production Index has flatlined over the past several months before finally falling into contraction.
This compares to the Federal Reserve report on manufacturing production, which found manufacturing output edged up compared to last month, but has remained lukewarm overall in 2019, with manufacturing utilization running short of its long-run average.
Related: U.S. Manufacturing Output Bounces Back in August
Fifteen of eighteen industries reported contraction in September, led by apparel, leather & allied products and wood products.
Employment Contracts
Manufacturing employment, which had enjoyed a long expansion for 43 consecutive months, moved into its second straight month of contraction in September, falling another 1.1% to a current reading of 46.3%.
This generally agrees with the latest report from the Labor Department, which found factories added just 3,000 jobs in August, compared to a record 265,000 jobs added in 2018 -- an average 22,000 jobs per month.
Fourteen out of eighteen industries reported a contraction in hiring.
Conclusion
According to the ISM, U.S. manufacturing activity is in contraction territory, hitting a level not seen since 2009.
This follows a long expansionary period, in which the index remained above contraction for a solid 35 months. New orders, production and employment all suffered sharp contractions in September.
Comments from manufacturing executives reflect continued concerns about the trade war with China, while many reported sluggish business conditions.
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