Growth in the US manufacturing sector slowed in September to its lowest level since May 2020, according to two separate readings on the industry, as demand diminishes amid high interest rates and inflation.
The Institute for Supply Management said its index tracking factory activity, regarded as leading economic indicator, dropped to 50.9 in September, missing economists’ forecast for a reading of 52.2.
The index, which has fallen 10 points from a year ago, is now dangerously close to falling below 50, which would indicate that the manufacturing sector is contracting.
Separately, the S&P Global manufacturing PMI also slowed to a reading of 52 in August from 51.8 in July. They were the lowest readings for the two gauges since the first half of 2020.
“Manufacturing will lose more steam in the months ahead as slackening goods demand and weak business investment depress activity,” said Oren Klachkin, lead US economist at Oxford Economics. “Goods inflation has peaked in our view, but it will remain elevated, while demand weakens amid rising recession fears and supply chain challenges persist.”
Within the ISM report, the new orders index contracted to a reading of 47.1, which is the lowest level since May 2020, after expanding for the first time in two months in August. The employment index also contracted after expanding for the first time in three months in August, as more companies paused hiring through hiring freezes and allowing attrition to reduce employment levels.
Still, survey respondents did not mention job cuts, which “indicates companies are confident of near-term demand,” said Timothy Fiore, chair of the ISM manufacturing business survey committee.
In a bright spot, companies reported supplier deliveries were faster and the order backlog index fell, suggesting that supply chain constraints are improving. Price growth also slowed in September from August.