October manufacturing output shows sequential gain but is short of growth mode, reports ISM

Manufacturing output again contracted in October, according to the new edition of the Manufacturing Report on Business, which was issued today by the Institute for Supply Management (ISM).

报告的基准指标,采购经理人指数增加1.2%, to 47.6 (a reading of 50 or higher indicates growth), contracting, at a slower rate, for the tenth consecutive month. The past ten months of contraction were preceded by a stretch of 29 consecutive months of growth. ISM also said that the overall economy contracted in October, following growth in September, which was preceded by 30 consecutive months of growth.

The October PMI is 0.7% below the 12-month average of 47.4, with September 2023 marking the high for that period, at 49.0, and June 2023, at 46.0, marking the lowest.

ISM reported that five manufacturing sectors saw growth in October—Food, Beverage, and Tobacco Products, and Plastics & Rubber Products. The 13 industries contracting in October were: Printing & Related Support Activities; Textile Mills; Electrical Equipment, Appliances & Components; Machinery; Fabricated Metal Products; Wood Products; Computer & Electronic Products; Furniture & Related Products; Paper Products; Miscellaneous Manufacturing; Primary Metals; Chemical Products; and Transportation Equipment.

The report’s key metrics were largely down in October, including:

• New Orders, which are considered the engine that drives manufacturing, fell 0.5%, to 46.8, contracting, at a faster rate, for the 12^thconsecutive month;
• Production fell up 2.1%, to 50.4, growing, at a slower rate, for the second straight month, with four sectors reporting growth;
• Employment slipped 4.4%, to 46.8, contracting after growing in September, with four sectors reporting growth;
• Supplier Deliveries, at 47.7 (a reading above 50 indicates contraction), moved faster, at a slower rate, for the 13^thconsecutive month, with two sectors reporting slower deliveries;
• Backlog of Orders, at 42.2, decreased 0.2%, contracting, at a faster rate, for the 13^thconsecutive month;
• Inventories, at 43.3, were down 2.5%, contracting, at a faster rate, for the eighth consecutive month, with only one sector reporting growth;
• Customer Inventories, at 48.6, were up 1.5% over September, heading “too low,” at a slower rate, for the fifth straight month; with three sectors reporting customers’ inventories as too high; and
• Prices, at 45.1, were up 1.3%, decreasing, at a slower rate, for the sixth consecutive month

Comments submitted by the ISM member respondents again highlighted various themes related to the economy and market conditions.

A Chemical Products respondent said that the economy is absolutely slowing down, adding that there is less optimism regarding the first quarter of 2024.

“A slow fourth quarter, and we’re clearly in a mild industry recession,” said a Fabricated Metal Products respondent. “However, demand is down less than 5 percent, and customer confidence of a recovery in the second half of 2024 is solid. Supplier deliveries are stable, and suppliers are seeking more work. But they’re not yet willing to adjust prices to compete for it.”

在一次采访中,ISM主席蒂姆•菲奥雷的人ufacturing Business Survey Committee, said that this report was somewhat of a “good stuff and not so good stuff” story, in a way.

“The good stuff is that [manufacturing] revenue was flat, coming in at 50.4, and things are pretty much stable on the production/revenue side,” he said. “Which is a really good thing because if it was not stable on that, you would see a lot of other activities occurring. The second good thing is that employment came down to 46.8, which means people are de-staffing in a much more aggressive way, as we have been talking about layoffs, attrition, and [hiring] freezes.”

To that end, he explained that around 55% of the report’s forced reduction comments, or layoffs, was up 35% over September, meaning that companies used layoffs as more of a tool in October compared to freezes and attrition, as well as the highest level of layoff since last May.

The confidence in demand seen over the first half of the year is not as strong as it was,” he said. “Or people are not quitting as much, therefore attrition isn’t working as quickly as companies want it to be.”

Looking at some of the report’s other metrics, Fiore observed that the Supplier Deliveries number inching up is a good sign and serves as a function of the fact that demand on the supply base is still pretty slim. Manufacturers are still delivering faster albeit not as fast as in September and are heading in the right direction, he said.

The Inventories reading, at 43.3, could be a hangover from the end of the third quarter, according to Fiore.

“很难对供应链利益相关者asure inventory during the month, and inventories normally are not shot until the end of the month,” he said. “And even though you may receive more material in the month, you might be converting more, so it is difficult. “The October reading is abnormally low and by year-end it could be north of 45.”

As for the “not so good stuff,” Fiore pointed to the New Orders reading, at 45.5.

“Looking at demand, Customer Inventories came back into just the right level, at 48.6, which is about right, but not a positive for the future,” he said. “That means that customers have as much as they need, with current output consistent with demand, so it is neutral. And New Export Orders, at 49.4, almost at 50, and climbing slowly. Should they go over 50, it can help the New Orders number, with Backlog of Orders still super-low, at 42.2. We continue to burn into backlog and drop it down.”

In summary, Fiore said that the positives for manufacturing are production, supplier deliveries, and inventories, with the negatives being new orders, in particular the backlog and customer inventory number, as well as new orders.

When asked how things could play out for manufacturing over the balance of the year, Fiore said that the PMI still has a chance of hitting the benchmark 50 reading.

“I think we'll continue to see supplier deliveries inch its way up towards 50, as the year closes,” he said. “Manufacturing inventory should get above 46, hopefully 47 or 48 over the next couple of months. Employment number will probably be a drag, maybe 42 to 44. Production is not going to move more than a couple points. And the new order level is probably not going to come back much beyond 48. I'm not sure if all that equals 50, but it gets us back into 48-to-52 range. I think the forecast is going to say that probably from a revenue standpoint, we probably met our expectations for the second half of this year. I think it's going say that H1 of 2024 is going to be less than H2 of 2023, with 2024 H2 will be stronger than H1 2024. That is the cycle I see happening, with the real recovery happening in the second half of next year.”