Manufacturing activity remains in growth mode as the dynamics of the sector begin to change, notes ISM

As in September, October manufacturing output remained in growth territory despite declining, according to the latest Manufacturing Report on Business, released today by the Institute for Supply Management (ISM).

The report’s key metric, the PMI, came in at 50.2 (a reading of 50 or higher indicates growth), after 50.9 in September and consecutive readings of 52.8 in July and August, with slower growth in the 29th quarter , straight month , linked to the overall economy also growing for the 29th straight month. This represents the lowest PMI reading going back to the 43.5 in May 2020.

The October PMI is 5.1% below the 12-month moving average of 55.3, with the October reading of 50.2 being the lowest over the period and the November 2021 reading of 60.6 being the highest.

ISM reported that nine manufacturing sectors grew in October, including: apparel, leather and related products; non-metallic mineral products; Machinery; petroleum and coal products; transportation equipment; other manufacturing; plastic and rubber products; and Electrical equipment, devices and components. The 10 sectors that declined included: furniture and related products; wood products; paper products; textile mills; printing and related support activities; prefabricated metal products; chemicals; primary metals; computer and electronic products; and food, beverage and tobacco products.

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

-New orders, commonly referred to as the engine of manufacturing, rose 2.1% to 49.2 and shrank at a slower pace for the second straight month, with three sectors reporting growth;
-Production rose 1.7% to 49.2, growing faster for the 29th straight month with three sectors reporting growth;
-Employment was flat at 50.0 from September after a month of contraction, with nine manufacturing sectors reporting growth;
-Supplier shipments grew faster at 46.8 (a reading above 50 indicates a slowdown) after contracting in September and remaining in “slowing territory” over a 79-month period and the lowest reading since the reached 43.2 in March 2009. with four sectors reporting growth;
-Order backlog down 5.6% at 45.3, contracting after a 27-month streak of growth with three sectors reporting growth;
– Inventories at 52.5 were down 3% from September and growing at a slower rate for the 15th straight month, and customer inventories at 41.6 were deemed ‘too low’ for the same rate of change as last 73 months; and
– Prices fell 5.1% to 46.6, falling to the lowest since May 2020’s 40.8 after 28 consecutive months of growth
Comments submitted by ISM member respondents highlighted various issues, including concerns about lower demand and a possible recession, among others.

A Food, Beverage and Tobacco respondent said the growing threat of a recession is causing many customers to significantly delay orders, adding that global uncertainty over the war between Russia and Ukraine is affecting global commodity markets. And a computer and electronic products respondent pointed to sluggish business activity and ongoing challenges in the electronics market.

In an interview, Tim Fiore, Chair of the ISM’s Business Survey Committee, explained that while the October data was similar to September’s, the real story was the differences in the data.

“Supplier deliveries are no longer seen as an issue,” he said. “We’re seeing faster deliveries now, not just better deliveries. And the price number almost collapsed in a way and came up with a really good number. It really says that the power between buyers and sellers is reaching an equilibrium. Everything used to be the power of the sellers, but now you see that the buyers now have power too and place orders. Rising production is good and employment is stable, with a big pause for what could come in the first quarter of 2023.”

On the demand side, he noted that customer inventories remain too low, with the caveat that they’d better not rise into the 45-46 range, while remaining flat compared to September. As for new export orders, which fell 1.3% to 46.5, he said it was seen as a sign of the decline, with “no end in sight as Europe and China continue to have major problems and China its policies are unlikely to change and the worst is yet to come for Europe.”

Looking at new orders, he said there was a low level of contraction in October and was almost flat, suggesting buyers may be reentering the market as order flows have slowed and order books have been depleted due to a lack of new order issuance .

“It kind of confirms that all of this fading and fading demand with people not placing orders as lead times are too high, prices were too high, order books were really flat… the positives of that have closed in the last six months.” Backorders resulted because outbound production is more than inbound orders,” he said. things [in manufacturing] are no longer supply-constrained and no longer demand-driven. We are actually in an adjustment phase.”

About the author

Jeff Berman, Group News Editor Jeff Berman is Group News Editor for logistics management, Modern conveyor technologyand Supply chain management review. Jeff works and lives in Cape Elizabeth, Maine, covering all aspects of supply chain, logistics, freight transportation and material handling on a daily basis. Contact Jeff Berman

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