The October ISM manufacturing index registered 50.2, narrowly beating expectations of a 50.0 print. The index fell 0.7 percentage points from the September’s reading of 50.9.
New orders rose by 2.1 percentage points to 49.2, while new export orders fell 1.3 percentage points to 46.5.
The backlog of orders sub-index came in at 45.3, falling 5.6 percentage points from September’s 50.9 print.
The production and employment indexes rose 1.7 and 1.3 percentage points, respectively, to 52.3 and 50.0.
The supplier deliveries sub-index fell to 46.8 from 52.4 in September.
Eight of 18 manufacturing industries reported growth in October. Growth was led by Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Machinery; Petroleum & Coal Products; and Transportation Equipment.
Key Implications
The ISM manufacturing index just managed to stay above the expansionary reading of 50 that signifies growth in October. Beneath the headline figure, the details of the report show a manufacturing sector slowing rapidly. New orders have now contracted in four of the past five months, while new export orders have fallen for three months in a row. The silver lining to the falling demand is that manufacturers have been able to improve supply-side conditions. Order backlogs fell for the first time since June 2020 while supplier delivery times accelerated – a first since 2016.
There is nothing in the October ISM that will dissuade the Fed from its current path. Softening demand is what the FOMC has been hoping to achieve since it set off on its rate hiking cycle and this month’s report shows that it’s working. Moreover, with more hikes on the way, goods demand should moderate further in the coming months, unwinding some of its spectacular rise over the past two years.
