The ISM Manufacturing PMI diffusion index indicates the net percentage of manufacturers who are experiencing expanding or contracting activity across various categories, with a reading below (above) 50 revealing contraction (expansion) across the manufacturing sector. The ISM Manufacturing PMI report for September 2023 increased to 49.0 from 47.6 in August. Although still contractionary, September’s gain is the second consecutive monthly increase for the Manufacturing PMI report and sees the topline gauge now creeping back toward breakeven conditions with gains across most major component indices. But the index has been in contraction territory (below 50) for the past eleven months. 

The New Orders component index of the ISM Manufacturing report for September 2023 rose to 49.2 from 46.8 in August but remained in contraction territory for the thirteenth straight month. The Production component rose to an expansionary 52.5 in September from 50 in August, the first time it was above 50 since May 2023. Likewise, the Employment component rose to an expansionary 51.2 in September from 48.5 in August, the first time it was above 50 since May 2023. The Employment component index of the ISM Manufacturing report continues to be difficult to interpret. Labor and skills shortages continue to make headlines, which suggest that manufacturers’ ISM report results would have difficulty entering expansionary territory even if labor demand were at its peak – the difficulty in finding qualified workers would simply stunt any intentions to hire. Additionally, the expanding UAW strike against the “big three” auto makers will distort the employment component and possibly the composite ISM index for October.   

Manufacturers’ pricing conditions remained depressed according to the September 2023 ISM Manufacturing report. The Commodity Prices component index fell to 43.8 in September from 48.4 in August, the fifth straight monthly decline. Oil prices have risen since late-summer, making it likely that the ISM Manufacturing report’s Commodity Prices component could break above the expansionary threshold of 50 in the coming months.

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