US factory activity is on the verge of contracting. That’s the bad news. The good news is, distortions are less pervasive.
In the latest sign that the world’s largest economy was off to a slow start in the fourth quarter following an optically (but not actually) strong showing in Q3, ISM manufacturing printed 50.2 for October, on the brink of slipping below the demarcation line (figure below).
That was actually a touch better than expected. Consensus was looking for 50 on the nose. The range of estimates, from five-dozen professional forecasters, was 48.6 to 50.9.
At the same time, S&P Global’s gauge was revised higher from the flash reading to show a slight expansion.
“October data signaled a subdued start to the final quarter of 2022, as US manufacturers recorded a renewed and solid drop in new orders,” Sian Jones, Senior Economist at S&P Global Market Intelligence, wrote. “Domestic and foreign demand weakened due to greater hesitancy among clients as prices rose further and amid dollar strength.”
ISM new orders contracted again, printing 49.2, up from September’s 47.1. The new export orders gauge slipped to 46.5. “The US manufacturing sector continues to expand, but at the lowest rate since the coronavirus pandemic recovery began,” ISM’s Tim Fiore said Tuesday. “With panelists reporting softening new order rates over the previous five months, the October index reading reflects companies’ preparing for potential future lower demand.”
On the bright side, the employment gauge in the ISM survey moved back near expansion territory and the prices paid gauge plummeted to 46.6, the lowest since May of 2020 (figure below).
We’re a long way from the nosebleed levels witnessed earlier this year. It was the first time in the pandemic era that the ISM factory survey suggested prices are falling.
In another watershed moment, the ISM supplier deliveries index dropped to 46.8, down markedly from September, the lowest since March of 2009 and the first print indicative of faster deliveries in 79 months. The inventories gauge fell.
The takeaway was clear enough: Distortions are fading, inflation pressures are waning, but growth is slowing.
S&P Global’s Jones summed it up. “On a more positive note, input costs rose at the slowest pace in almost two years amid signs of reduced disruption in supply chains,” she said. “Lower demand for inputs was a contributing factor to this, however.” Firms passed along the savings “where possible.”
No one really knows, do they. So many gauges, measures, readings and reports, but what they show and how they relate is up for grabs. In the meantime the natives get restless and that never turns out well.
Is there any progress being made to improve our national and global understanding of economics at this point or are we destined to just lash ourselves to the wheel and try to ride it out hoping to survive knowing it’s going to happen again and again.