US Manufacturing Contracts for 4th Straight Month in October

Men work on a wind turbine at a manufacturing plant in Pueblo, Colo., on Nov. 29, 2023. Andrew Caballero-Reynolds/AFP/Getty Images

The U.S. manufacturing industry was stuck in contraction for the fourth consecutive month in October as the goods-producing sector signaled “a deterioration in business conditions,” a new S&P Global report has found.

The S&P Global Flash U.S. Manufacturing Purchasing Managers Index (PMI)—an indicator of the manufacturing or service sectors’ prevailing direction of economic trends—rose to 47.8 this month, up from 47.3 in September. Anything below 50 confirms that the industry is in contraction.

Markets had projected a reading of 47.5.

The most significant negative contributor to the PMI was a decline in new orders, the fourth straight monthly drop. A sharp decrease in purchase inventories, the worst in 14 months, was also a substantial drag on the latest reading.

Output, employment, and suppliers’ delivery times also weighed on the index.

Weak manufacturing data have not been confined to the S&P Global PMI.

The alternative Institute for Supply Management’s Manufacturing PMI, for example, has been stuck in contraction for six consecutive months. Employment has dropped for four straight months while prices have risen for most of 2024.

Last month, The Conference Board’s Leading Economic Index slumped by 0.5 percent, partly caused by weakness in factory orders.

Indeed, according to the Census Bureau, factory orders fell by 0.2 percent in August, and the July numbers were adjusted down to 4.9 percent.

Services Are Booming

Conversely, the services sector might support the country’s solid economic performance.

According to the S&P Global Flash Services PMI, the industry continued in expansion mode this month, edging up to 55.3 in October from 55.2 in September. This was the fifth straight monthly print above the 55 threshold and topped market estimates.

A 29-month high in new orders fueled the better-than-expected services PMI reading, with domestic demand offsetting a slump in new exports.

Selling prices eased to a four-year low while input costs surged amid persistent wage pressures.

Chris Williamson, S&P Global Market Intelligence’s chief business economist, said competitive pricing stimulates services.

“Sales are being stimulated in part by more competitive pricing, which has in turn helped drive selling price inflation for goods and services down to the lowest since the initial pandemic slump in early 2020,” Williamson said in the report. “These weaker price pressures are consistent with inflation running below the Fed’s 2 percent target.”

The latest data indicate mixed economic health, consistent with other recent data.

Since early September, national economic activity has been little changed, according to the Federal Reserve’s latest Beige Book—a snapshot of regional economic conditions across the central bank’s 12 districts.

Still, projections suggest that the U.S. economy is poised to post another firm gross domestic product (GDP) number.

According to the Federal Reserve Bank of Atlanta’s GDPNow Model estimate, the real GDP growth rate was 3.4 percent in the third quarter. The New York Fed Staff Nowcast is signaling a 3 percent expansion for the July–September period.

But manufacturing has yet to emulate the robust performance observed in the broader economy.

“Manufacturing activity again declined moderately, and contacts expected demand to remain soft in the coming months,” the Beige Book states.

Manufacturing a Slowdown

The manufacturing sector plays a more minor role in the U.S. economy these days than in previous decades.

Manufacturing represents 10 percent of nominal GDP, down from nearly 30 percent in the early 1950s. Today, 12.9 million people are employed in the industry, down from the 1979 peak of 19.55 million.

Despite the domestic industry’s troubles, Republican and Democrat administrations have attempted to revitalize the sector, whether employing tariffs or dumping billions in subsidies.

Both 2024 presidential contenders have made manufacturing a centerpiece of their economic agendas.

Former President Donald Trump, the Republican nominee, has pledged to ignite a “manufacturing renaissance,” calling for a “new American industrialism.”

“Under my leadership, we’re going to take other countries’ jobs,” Trump said at a Georgia rally last month. “We’re going to take their factories, and we really had it rocking four years ago.”

Vice President Kamala Harris, the Democratic presidential nominee, outlined her “America Forward” initiative in September. This plan would generate $100 billion in new investments in manufacturing through a mix of tax credits and support for American-made products.

“This plan will cost approximately $100 billion and will be paid for by a portion of the proceeds of international tax reform, which seeks to prevent a global race to the bottom and to discourage inversions, outsourcing, or international tax strategies designed by corporations to avoid paying their fair share to the United States,” the Harris campaign stated in a fact sheet.

The current administration has poured billions of dollars into the sector through a trifecta of landmark legislation—the Inflation Reduction Act, the CHIPS and Science Act, and the Bipartisan Infrastructure Law—that features a slew of tax credits and grants to domestic and foreign corporations.

But while manufacturing capacity is at a six-year high, it has not translated into a booming industry.

In addition to the slowing output, manufacturing payrolls have declined by about 50,000 so far this year.

Last month’s ISM PMI survey responses signaled two industry trends: softening global demand and companies taking a wait-and-see approach until after the November election.

“Business is flat,” a furniture and related products manufacturer stated in the survey. “Waiting for interest rates to drop and the election outcome in November before we confirm our 2025 plans. Currently planning on a flat 2025.”

The Federal Reserve’s Federal Open Market Committee cut interest rates at the September policy meeting, and officials have indicated that more rate cuts are coming over the next two years.