in September 2022
- The ISM Manufacturing PMI report fell to 50.9 in September 2022
- The New Orders component index posted its 3rd contractionary result (47.1) in the last four (4) months
- The Commodity Prices component index continued its dramatic downshift from recent inflation-driving highs
- Inventory conditions among manufacturers as well as their customers are approaching normality
The ISM Manufacturing PMI report came in at 50.9 for September 2022. This is down from the August (and July) result of 52.8. This index measures net activity among manufacturers, with a reading of 50 indicating an even split between those indicating expansionary and contractionary conditions. The ISM Manufacturing report has not yet posted a contractionary result in its topline index since recovery from early-pandemic chaos took hold (43.1 in May 2020; 52.2 in June 2020). But the current downtrend in the overall index has been well entrenched since October 2021, seeing the monthly reading fall consistently from 60.8 down to its current 50.9 level. Manufacturers are providing clear evidence that the Fed’s “Demand Destruction” efforts are having the desired effect.
The ISM New Orders component index fell to 47.1 in September 2022, down from 51.3 in August. This is the 3rd month out of the last four (4) in which this component of the ISM Manufacturing report has indicated that contractionary conditions are in place among manufacturers. The Employment component index has followed suit as manufacturers have seen, and seem to be planning for, less demand in the coming months. The Employment index posted a contractionary 48.7 reading for September, itself falling below the expansionary threshold of 50 for a 4th month out of the last 5. These numbers are not exceptionally weak (i.e., not far below 50), so despite them technically indicating contraction among manufacturers, an all-out collapse in the sector does not seem imminent.
Commodity Prices fell to near equilibrium in September 2022, posting a decline to 51.7 in August (vs. 52.5 in August). The Commodity Prices component of the ISM Manufacturing report had sustained levels above 75 from January 2021 through June 2022 before falling sharply over the past few months. Oil price declines in the last few months through September are an obvious contributor to this turnaround. The benefits of lower Commodity Prices for manufacturers should translate into less upward pressure on consumer prices through the fourth quarter of this year as the need to pass on upstream costs throughout the transportation, wholesale, and retail pipelines diminishes.
The Federal Reserve indicated out of its September meeting that monetary policy tightening remains in full-throttle mode. But with oil prices back down to levels not too different than prior to Russia’s invasion of Ukraine, Producer Prices indicating an easing trend over the last few reports, and the ISM Manufacturing report providing supporting evidence of easing demand and pricing pressures – without turning in dramatically contractionary results – the U.S. economy appears to be stabilizing in terms of inflation and lingering supply chain disruptions. The U.S. consumer’s spending habits in the months ahead will ultimately determine the staying power of this stability.
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