October 2023 ISM and S&P Global Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey of U.S. manufacturers reflected faster contraction in the sector during October. The PMI registered 46.7%, down 2.3 percentage points (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. Only the production subindex remained above 50; the largest changes occurred among employment (-4.4PP), new orders (-3.7PP), and inventories (-2.5PP). 

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Concurrent activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- decelerated (-1.8PP, to 51.8%). Exports (-14.9PP), imports (+9.4PP), inventories (-4.7PP), and business activity (-4.7PP) exhibited the largest changes.

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Of the industries we track, only Construction expanded. Respondent comments included the following --

Construction. “Strength in certain construction sectors is leading to continued optimism. Construction equipment and materials are generally at lower prices and with faster deliveries. However, this is not the case for all materials or equipment; some prices remain high and with long lead (times).”

 

Changes in S&P Global‘s headline index values both rose, albeit marginally. Details from S&P Global’s surveys follow --

Manufacturing. US manufacturing conditions stabilize amid renewed rise in new orders.

Key findings:

• Output expansion quickens as sales return to growth
• First fall in employment since July 2020
• Inflationary pressures strengthen

Services. Stronger expansion in output, but demand remains fragile. Inflationary pressures at three-year low.

Key findings:

• Greater employment supports faster upturn in activity
• New orders continue to fall
• Slowest rises in input prices and output charges for three years

 

Manufacturing. “October PMI data signaled a stabilization of US manufacturing conditions amid a renewed rise in new order inflows and firmer output growth,” wrote Siân Jones, Principal Economist at S&P Global Market Intelligence. “Demand conditions reportedly showed signs of improvement as customer interest revived, but this was once again largely focused on the domestic market as new export orders fell at a quicker rate.

“Of concern were reports of dwindling backlogs of work, previously used to help support production, as firms also revised down their expectations for future output to the lowest in 2023 so far. At the same time, manufacturers cut employment for the first time in over three years as workloads were reportedly insufficient to warrant additional hiring or the replacement of voluntary leavers.

“On the price front, manufacturers saw sharper increases in costs and output charges, as inflation regained some momentum in the sector. Higher oil and oil-derived input prices again spurred hikes, as rates of inflation accelerated for the third month running.”

 

Services. “The PMI survey paints a far more subdued picture of US economic health than the latest bumper GDP numbers, with October seeing very muted growth of business activity for a third successive month,” wrote Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. “A summer surge in service sector activity, fueled by rising consumer spending, has stalled. Manufacturing is meanwhile also struggling to regain momentum amid weak global demand. As such, the survey data are broadly consistent with GDP rising at an annual rate of around 1.5%.

“An upside to the weak demand environment is the further cooling of price pressures in October, which brings the Fed’s 2% target into focus for the first time in three years.

“The brighter outlook for inflation and hopes of a commensurate peaking of interest rates have helped lift business confidence in year-ahead prospects, but new business inflows need to pick up in both services as well as manufacturing to ensure robust growth can be sustained 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.