U.S. manufacturing nearly brakes; price pressures abating

This is the second data point that we've seen in a 24 hour period that could indicate that inflation is cooling; the other data point was reflected in the shipping containers/cargo article released yesterday, which showed a material slowdown in loads.

Summary:

• Manufacturing PMI falls 1.9 points to 50.9 in September
• New orders, employment measures contract
• Price pressures at factories, supply bottlenecks easing
• Construction spending falls 0.7% in August

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(Via Reuters)

U.S. manufacturing activity grew at its slowest pace in nearly 2-1/2 years in September as new orders contracted amid aggressive interest rate increases from the Federal Reserve to cool demand and tame inflation.

The Institute for Supply Management (ISM) survey on Monday also showed a measure of manufacturing employment contracted last month for the fourth time this year. A gauge of inflation at the factory gate decelerated for a sixth straight month.

ISM Manufacturing Business Survey Committee chair Timothy Fiore said "companies are now managing head counts through hiring freezes and attrition to lower levels, with medium- and long-term demand more uncertain."

Fiore, however, noted that there were no comments from firms about large-scale layoffs, which he said indicated that "companies are confident of near-term demand." The Fed's tighter monetary policy campaign has raised fears of a recession next year, triggering a sharp sell-off on the stock market.

"In many ways, this is the cooling economy the Fed would like to see," said Will Compernolle, a senior economist at FHN Financial in New York. "It could, however, merely reflect a consumer shift away from goods towards services."

The ISM's manufacturing PMI dropped to 50.9 this month, the lowest reading since May 2020, from 52.8 in August. ISM said the fall in the index "reflects companies adjusting to potential future lower demand." A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the U.S. economy.

Economists polled by Reuters had forecast the index slipping to 52.2. Nine manufacturing industries, including machinery, transportation equipment and computer and electronic products reported growth. Furniture and related products as well as textile mill and wood products were among the seven industries reporting a contraction.

Some of the slowdown in manufacturing reflects the rotation of spending from goods to services. Government data last Friday showed spending on long-lasting manufactured goods barely rising in August, while outlays on services picked up.

The U.S. central bank has since March hiked its policy rate from near zero to the current range of 3.00% to 3.25%, and last month signaled more large increases were on the way this year.

The higher borrowing costs are undercutting spending on big-ticket items like household appliances and furniture, that are typically bought on credit.

Construction has also not been spared. A separate report from the Commerce Department on Monday showed construction spending fell by the most in 1-1/2 years in August as single-family homebuilding tumbled 2.9%.

"It all comes back to higher borrowing costs and weaker demand," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. "The mild recession call still holds."

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Source: https://www.reuters.com/markets/us/us-manufacturing-activity-slowest-almost-2-12-years-september-ism-2022-10-03/