In latest sign of recession, U.S. manufacturing growth slumps to lowest level in two years

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WASHINGTON (Reuters) – U.S. manufacturing activity grew at its slowest pace in nearly 2.5 years in September as new orders contracted amid aggressive interest rate hikes from the Federal Reserve to calm demand and control inflation.

Monday’s Institute for Supply Management (ISM) survey also showed a measure of factory employment contracted last month for the fourth time this year. Timothy Fiore, chair of the ISM’s Manufacturing Business Survey Committee, said “companies are now managing the workforce by freezing hiring and attriting at lower levels as medium and long-term demand is more uncertain. “.

Fiore, however, noted that there was no comment from companies on the large-scale layoffs, which he said indicated that “companies are confident about near-term demand.” The Fed’s tighter monetary policy campaign raised fears of a recession next year, triggering a sharp sell-off in the stock market.

“The good news is that there are welcome signs that prices are stabilizing,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan.

“The bad news is that consumer demand for a wide range of goods continues to decline, another sign that the economy is feeling the effects of high inflation, rising interest rates and a general slowdown. of the activity.”

The ISM manufacturing PMI fell to 50.9 this month, the lowest level since May 2020, from 52.8 in August. He said the decline in the index “reflects companies adjusting to a potential future drop in demand.” A reading above 50 indicates an expansion in the manufacturing industry, which accounts for 11.9% of the US economy.

Economists polled by Reuters had expected the index to fall to 52.3. Nine manufacturing industries, including machinery, transportation equipment and computer and electronic products, recorded growth last month. Furniture and related products as well as textile mills and wood products were among the seven industries that reported a contraction last month.

Part of the slowdown in the manufacturing sector reflects the rotation of spending from goods to services. Government data last Friday showed that spending on durable manufactured goods rose little in August, while spending on services increased.

The U.S. central bank has since March raised its benchmark rate from near zero to the current range of 3.00% to 3.25%, and last month signaled that bigger increases were on the way this year.

Higher borrowing costs reduce spending on big-ticket items like appliances and furniture, which are typically purchased on credit.

Transportation equipment makers said “production is stable, helping to reduce the backlog amid slightly slower demand.” Fabricators said “business is flat or down due to inflation and interest rates.”

Manufacturers of electrical equipment, appliances and components said “business continues to be strong.”

US stocks were trading higher. The dollar fell against a basket of currencies. US Treasury prices rose.

WEAKENING OF FACTORY EMPLOYMENT

The ISM survey’s forward-looking new orders sub-index fell to 47.1 last month, also the lowest since May 2020, from 51.3 in August. This is the third time this year that the index has contracted. Order books are also reduced and inventory levels for manufacturers and their customers are close to normal levels.

While the reduction in backlogs indicated a further slowdown in manufacturing, it was also a function of the alleviation of bottlenecks in the supply chain. The ISM measure of supplier shipments fell to 52.4, the lowest reading since December 2019, from 55.1 in August. A reading above 50% indicates slower deliveries to factories.

Reviews of the offer were mixed. Manufacturers of electrical equipment, appliances and components said “some products in the supply chain are beginning to stabilize, while others continue to disrupt production.”

Machine makers reported that “supply chain constraints on many items are still an issue”, also noting that “staff on the production side continues to be a significant issue”. But computer and electronics manufacturers reported that “supply chain issues for all electronic components and custom building materials are rare due to capacity and skilled labor shortages.”

With supply chains loosening, inflationary pressures at the factory gate continued to ease.

A measure of prices paid by manufacturers fell to 51.7, the lowest reading since June 2020, from 52.5 in August. The continued slowdown is fueled by falling commodity prices. Annual consumer and producer inflation slowed in August, raising hopes that prices had peaked.

The ISM survey’s factory employment measure fell to 48.7 from a five-month high of 54.2 in August. Although the index has contracted four times this year, it has been a poor predictor of manufacturing payrolls in the government’s closely watched jobs report, which has risen steadily despite swings in the indicator. Employment ISM.

While job growth is slowing, the demand for workers remains strong. There were 11.2 million unfilled jobs across the economy at the end of July, with two job vacancies for every unemployed person.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)

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