US Manufacturing Sector Shows Signs of Contraction and Employment Decline

Survey Results Indicate Contraction in US Manufacturing

The US manufacturing sector has been showing signs of contraction, according to S&P Global's PMI survey. The survey indicated that the sector moved deeper into contraction territory towards the end of the third quarter of the year, with the figure dropping from 48.0 to 47.0. This marks the third consecutive monthly contraction in the soft data survey.

The ISM's version of the Manufacturing PMI survey also showed contraction, recording a figure of 47.2, which was worse than expected. This contraction has been ongoing for six consecutive months.

Contraction in New Orders and Employment

New orders have remained in contraction for the sixth straight month, while employment has seen a significant drop, nearing the lows experienced post-COVID-lockdown. However, Prices Paid have softened significantly.

Expert Insights on the Current State of US Manufacturing

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, offered insights on the disappointing economic indicators revealed by the September PMI survey. He noted that factories reported the largest monthly drop in production in 15 months due to a slump in new orders. This has led to further reductions in employment and input buying as producers scale back their operating capacity.

Despite the current business situation, Williamson noted that companies are anticipating a temporary drop in demand due to the uncertainty surrounding the Presidential Election. The prospect of lower interest rates has raised confidence in the longer-term outlook, with firms expecting that demand will be rekindled by lower borrowing costs if the political environment improves. Therefore, business expectations about the year ahead have improved despite the current deterioration.

However, Williamson warned that the current weak demand environment, while keeping cost pressures low in the manufacturing sector, could pose risks to the inflation picture due to potential geopolitical events driving energy prices higher and possible spikes in shipping prices.

Summary of the Current Situation

In summary, the US manufacturing sector is experiencing slower growth or contraction and rising output prices. This stagflationary signal does not exactly suggest a 50bps rate cut.

Bottom Line

The US manufacturing sector is facing some significant challenges, with contraction and employment decline being the most pressing. The uncertainty surrounding the Presidential Election and potential geopolitical events could further impact the sector. However, there is a sense of optimism for the future, with firms expecting an improvement in the longer-term outlook. What are your thoughts on these developments? Do you think the manufacturing sector will recover soon? Share your thoughts and this article with your friends. And don't forget to sign up for the Daily Briefing, delivered to your inbox every day at 6pm.