U.S. manufacturing activity has reached its lowest level in nearly a year, according to recent data released by the Institute for Supply Management (ISM). However, there is hope that this contraction may be the worst of it, as the index measuring manufacturing activity shrank at its slowest pace in almost a year in September.
The ISM manufacturing index rose to 49 in September, up from 47.6 in August. While this still indicates a contraction in manufacturing activity as it remains below 50, it exceeded the expectations of most economists surveyed by Bloomberg. This marks the highest level since November last year and suggests that the manufacturing sector may be starting to recover.
The index has shown improvement over the past few months, gaining 3 points since June. This is the biggest three-month gain since March 2021. September’s index was boosted by strong output growth, the highest since July 2022, as well as an expansion of factory employment. The gauge of new orders also rose to its highest level in over a year, albeit still showing contraction.
Falling commodity prices have provided some relief to producers, as the price indicator for raw materials fell by 4.6 points to 43.8 in September. This is the largest decline in four months. Additionally, recent government data has shown that business demand for equipment rebounded in August.
While the manufacturing sector has been contracting for nearly a year, the pace of deterioration is slowing. Consumer spending continues to remain resilient despite high borrowing costs and inflation. Businesses have also made progress in reducing inventories, and the ISM report indicates a decline in both customer and factory inventories.
However, strikes targeting the three largest U.S. automakers pose a threat to the industry’s progress. These strikes, alongside ongoing supply chain challenges, may hinder the stabilization of prices and overall improvement in the manufacturing sector.
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