Manufacturing economic activity fell in October and is getting close to contraction, the Institute for Supply Management said today.
The Tempe, Ariz.-based group’s manufacturing index, known as the PMI, reached 50.2 percent last month. That was down from 50.9 percent in September.
The October index reading was also the lowest since manufacturing began to recover from the COVID-19 pandemic in 2020.
With the PMI, above 50 percent indicates economic expansion while below that mark indicates contraction. The index has remained in positive territory for 29 consecutive months.
ISM officials cautioned that a PMI below 50 percent doesn’t necessarily mean a full-fledged recession for the economy.
“I think we’ll end up in contraction that doesn’t mean a recession,” Timothy R. Fiore, chair of ISM’s Manufacturing Business Survey Committee, said on a conference call. “We may not grow for a period of time.”
Fiore said the PMI would have to decline into the upper 30s to low 40s for the overall economy to be in recession. “We’re nowhere near there,” Fiore said.
The PMI is based on a survey of executives in 18 industries. The index has averaged 55.3 percent the past 12 months. The PMI is considered a leading economic indicator and a barometer of where manufacturing is headed.
In October, eight industries reported economic expansion, including machinery, petroleum & coal products, transportation equipment and miscellaneous manufacturing. Ten industries reported economic contraction, including fabricated metal products.
ISM’s New Orders Index improved slightly but was still in negative territory. The October New Orders level was 49.2 percent, up from 47.1 percent in September. Three of 18 industries reported a gain in new orders – apparel, petroleum & coal products and plastics & rubber products. Twelve industries reported a decline in new orders.
The New Orders Index is considered important because orders have an impact on production in subsequent months.
The group’s Production Index registered at 52.3 percent in October, up from 50.6 percent in September. Six industries reported a gain in output, with eight reporting production declines.
The institute’s Employment Index was at 50 percent even in October, better than 48.7 percent the month before. Nine industries reported employment gains last month, with five reporting job decreases.
The Federal Reserve is boosting interest rates as it tries to cool inflation. That has raised fears of a recession.
“We’ll see what November brings,” Fiore said on the conference call. “You can’t help but notice interest rates are forecast to keep going up.”
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