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Factory floors are steady but subdued across the country but order volumes are uneven and costs remain unpredictable. Most manufacturers are adjusting schedules, refining sourcing strategies and watching demand as they plan for the months ahead.
That tone of cautious persistence defines U.S. manufacturing right now, according to the latest Manufacturing PMI® from Institute of Supply Management (ISM®). The latest data shows another month of contraction, but many leaders say the real story is how companies are adapting, managing labor carefully and focusing on efficiency while waiting for a stronger uptick in orders.
Other companies are embracing the “bring manufacturing back to the U.S.” battle cry and finding new ways to reshore and onshore. For example, venerable pen brand Sharpie (Newell Brands) recently invested about $2 billion in a new facility in Maryville, Tenn., where it’s now making more than 500 million pens a year. The Wall Street Journal says the shift helped the manufacturer boost production speeds, maintain stable pricing and avoid layoffs.
Seven Months of Contraction
Economic activity in the manufacturing sector contracted in September for the seventh consecutive month, following a two-month expansion preceded by 26 straight months of contraction, according to the new Manufacturing PMI® Report. The report registered 49.1% in September, a 0.4-percentage point increase compared to the reading of 48.7% recorded in August, ISM reports.
A Manufacturing PMI® above 42.3%, over a period of time, generally indicates an expansion of the overall economy. In other news, the Backlog of Orders Index registered 46.2%—up 1.5 percentage points compared to the 44.7% recorded in August. And the Employment Index registered 45.3%, up 1.5 percentage points from August’s figure of 43.8%.
“The Supplier Deliveries Index indicated slower delivery performance for the second consecutive month after one month in ‘faster’ territory, which was preceded by seven consecutive months in ‘slower’ territory,” ISM’s Susan Spence said in the report. “In September, U.S. manufacturing activity contracted at a slightly slower rate, with production growth the biggest factor in the 0.4-percentage point gain of the Manufacturing PMI.”
By the Numbers
On a positive note, one of the four demand indicators improved last month, with the Backlog of Orders Index showing a gain of 1.5 percentage points. The New Orders, New Export Orders and Customers’ Inventories indexes contracted at faster rates.
In assessing the current state of the manufacturing economy, ISM says 67% of the sector’s gross domestic product (GDP) contracted in September, down from 69% in August. Twenty-eight percent of GDP is strongly contracting (registering a composite PMI® of 45% or lower), up from 4% in August.
The five manufacturing industries reporting growth in September were petroleum & coal products; primary metals; textile mills; fabricated metal products; and miscellaneous manufacturing. The 11 industries reporting contractions included chemical products, electrical equipment, appliances & components, machinery, and computer & electronic products (among others).
“Business Continues to be Severely Depressed”
Manufacturers voiced their concerns and detailed the top pain points that are keeping them up at night right now. “Business continues to be severely depressed. Profits are down and extreme taxes (tariffs) are being shouldered by all companies in our space,” said one professional working in the transportation equipment sector. “We have increased price pressures both to our inputs and customer outputs as companies are starting to pass on tariffs via surcharges, raising prices up to 20%.”
"The tariffs are still causing issues with imported goods into the U.S.,” said one chemical products professional. “In addition to the cost concerns, product is being held up at borders due to documentation issues. The inflation issues continue; low volumes are a constant concern.”
On the electronics front, one computer and electronic products maker talked about how the semiconductor industry is being impacted by high tariff prices on parts from Korea, China and Europe. “Our industry is at a low point right now as we race to get new nanotechnology in the U.S.”
Export and Import Trends
Of the 18 manufacturing industries that ISM tracks, none reported growth in new export orders in September, but 10 industries reported a decrease in new export orders during that 30-day period. Seven industries reported no change in new export orders in September. At the other end of the spectrum, ISM’s Imports Index remained in contraction for the sixth month in September after expanding for three straight months.
The September figure of 44.7% is a decrease of 1.3 percentage points compared to the reading of 46% reported in August. “Imports are contracting at a faster rate,” says Spence, “indicating lower levels of demand due to tariff pricing.”
