The US manufacturing industry took further steps towards recovery in September, as production and employment also picked up, according to the latest ISM BMI. The survey also highlighted the significant drop in prices paid by factories for input materials. The survey indicated an improvement for the third consecutive month, confirming economists’ forecasts that economic growth would pick up in the third quarter, despite rising interest rates.
This positive trend was further strengthened by the report of the Ministry of Commerce, according to which housing and factory construction activities increased significantly. The flexibility of the economy gives rise to optimism that a recession can be avoided in the near future, but it also poses a risk from an inflation point of view.
The soft landing narrative still applies as we enter the final quarter of 2023
Jennifer Lee, chief economist at BMO Capital Markets in Toronto, commented to Reuters.
The manufacturing BMI rose to 49.0 last month, the highest level since November 2022, the ISM reported. In August, it stood at 47.6 points. However, this is still the 11th consecutive month that the BMI has remained below 50, indicating a contraction within the manufacturing sector
– such a series has not been seen since the great recession of 2007-2009.
Despite a BMI below 50, the economy remains weak. Growth estimates for the third quarter suggest growth could be as high as 4.9% year-on-year, compared to 2.1% growth in the second quarter, but the estimate is subject to high uncertainty.
Within manufacturing, five industries reported growth last month, according to the ISM survey, including textile mills and metals. In contrast, industries reporting contraction included manufacturers of computer and electronic products, machinery, electrical equipment, appliances and parts.
While business surveys like BMI’s have painted a bleak picture of manufacturing, which accounts for about 11% of the U.S. economy, hard data shows that the sector continues to expand. Durable goods orders rose 4.2% year-on-year in August, and business spending on equipment appears to have remained strong in the third quarter following a rebound in the previous quarter.
The ISM survey’s forward-looking new orders sub-index rose to 49.2 last month from 46.8 in August, indicating an improvement in new orders and an acceleration in factory production. However, the average lead time for capital expenditures increased by two days, indicating that it still takes a significant amount of time to order, acquire and install business equipment.
Factory employment also continued to improve after falling to a three-year low in July.
The survey’s factory employment index rose to 51.2 last month from 48.5 in August. “Attrition remained the primary source of downsizing, but hiring freezes were also more prevalent,” said Timothy Fiore, chairman of the ISM Manufacturing Business Survey Committee.
Ultimately, while there are still challenges facing the U.S. manufacturing industry, the latest data shows positive signs of recovery and industry resilience.
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