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The Institute for Supply
Management‘s (ISM) monthly sentiment survey of U.S. manufacturers for October 2022 virtually
stalled. The PMI registered 50.2%, down 0.7 percentage point (PP) from September’s
reading. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of
U.S. employment and about 20% of the overall economy. Subindexes with the
largest changes include order backlogs (-5.6PP), slow deliveries (-5.6PP), and input
prices (-5.1PP).
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Activity
in the services sector -- which accounts for 80% of the economy and 90% of
employment -- decelerated further in October (-2.3PP, to 54.4%). Exports (-17.4PP),
new orders (-4.1PP), employment (-3.9PP), and inventories (+3.1PP) exhibited
the largest changes.
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Of
the industries we track, Wood Products and Paper Products both contracted. Respondent
comments included the following:
Construction. “Customers are starting to delay projects and/or
entering smaller-scale scopes of work. We believe this is a continuation of an
uncertain economic environment.”
Real
Estate. “Prices seem to continue
increasing for commodities, including plumbing, flooring materials, floor
adhesives, door locks, and bedroom and bathroom doors. Delays in delivery have
increased after leveling off in the middle of the year.”
Electrical
Equipment, Appliances & Components.
“Housing market is down, so our business is affected. Capacity has increased
over the last two years due to high orders of consumer goods and appliances, so
now we’re trying promotions to get our orders up to where we can use all our
capacity.”
Wholesale
Trade. “We are experiencing a
bullwhip of oversupply on some goods … while still desperately short on other
goods. The market is recovering very inconsistently.”
Changes
in S&P Global‘s
survey headline results were at least directionally consistent with those of
ISM: For manufacturing both surveys barely avoided contraction; for services,
ISM expanded more slowly while S&P contracted more quickly. Details from
S&P Global’s surveys follow --
Manufacturing. Manufacturing output continues to rise, but weak
demand conditions dampen growth.
Key findings:
* Easing supply chain issues support output growth...
* ...but new orders fall at sharpest rate since May 2020
* Inflationary pressures soften further
Services. Service sector output decline gathers pace amid
renewed drop in new business.
Key findings:
* Solid contraction in activity amid weak client demand
* Near-stagnation in employment
* Inflationary pressures soften
Commentary
by Siân Jones, S&P Global’s senior economist:
Manufacturing. “October PMI data signaled a subdued start to the
final quarter of 2022, as US manufacturers recorded a renewed and solid drop in
new orders. Domestic and foreign demand weakened due to greater hesitancy among
clients as prices rose further and amid dollar strength. As such, efforts to
clear backlogs of work, rather than new order inflows, drove the latest upturn
in production.
“Confidence
in the outlook waned as underlying data also highlighted efforts to cut costs
and adjust to more subdued demand conditions in the coming months. Input buying
fell sharply and resilience in employment stumbled, as the pace of job creation
eased to only a marginal rate.
“On
a more positive note, input costs rose at the slowest pace in almost two years
amid signs of reduced disruption in supply chains. Lower demand for inputs was
a contributing factor to this, however. Nevertheless, softer hikes in costs
were reflected in a slower uptick in output charges, as firms sought to pass on
cost savings where possible to try and boost sales.”
Services. “Service sector firms faced a challenging start to
the final quarter of 2022, as a renewed contraction in new business dragged
output down further. Demand conditions were hampered by tighter financial
conditions and elevated rates of inflation, leading to reports of postponements
and the delayed placement of orders as customers assess their spending.
“Subdued
demand and weaker confidence in the outlook for output led to a near-stagnation
in employment. Reports of the non-replacement of voluntary leavers brought
signs that firms were evaluating costs and future demand more closely before
advertising vacancies and expanding staffing levels.
“Nonetheless,
momentum in previously soaring inflation slowed again. Hikes in costs softened,
as service providers and manufacturers saw slower upticks in supplier and input
prices. Meanwhile, private sector firms sought to boost demand through a slower
increase in selling prices. Although softening, further elevated rises in
prices paid by consumers present obstacles to firms in an already challenging
demand environment and paint a concerning picture as we head towards the end of
the year.”
The foregoing comments represent the
general economic views and analysis of Delphi Advisors, and are provided solely
for the purpose of information, instruction and discourse. They do not
constitute a solicitation or recommendation regarding any investment.
