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Although demand improved in October, U.S. output fell at a faster pace than the previous month, largely due to continued tariff uncertainty, according to the latest report from the Institute for Supply Management. Index of purchasing managers.
The ISM index was recorded at 48.7 percent in October, down 0.4 percent compared to the previous month September. A PMI below 50% indicates a contracting industry.
All four ISM demand indicators — new orders, new export orders, backlogs and customer inventories — improved from September, but were below 50 percent. Significantly, customer inventories were in the “very low” category, which ISM encourages for customer reorders in the near future, Susan Spence, chair of ISM’s manufacturing business review committee, said on a Monday morning call. However, rising costs and business uncertainty could affect orders and operations.
“The biggest issue continues to be on the minds of the panelists[s] For every positive comment from ISM manufacturing participants in October, Spence said, more than six respondents had negative feedback about tariffs.
As for manufacturing, output worsened after rising in September and employment fell. According to ISM, more than 67 percent of respondents stated that “headcount management is still the norm in their companies” rather than hiring.
Meanwhile, inputs – such as supplier deliveries, inventories, prices and imports – were largely mixed. ISM reported that supplier deliveries were recorded at 54.2% in October, down from 52.6% in the previous month. Manufacturing inventories fell faster and prices rose for the 13th straight month, Spence said. Supplier deliveries are indicated by the only inverse ISM index, meaning a reading above 50% indicates slower deliveries.
In addition to tariffs, the ISM also raised concerns about the broader manufacturing economy. Roughly 58 percent of the sector’s GDP fell in October, down from 67 percent in September. Still, Spence said, the percentage of GDP in contraction was 41 percent, up from 28 percent the previous month. Of the six major manufacturing industries, only two — food products, beverages and tobacco, and transportation equipment — expanded in October.
Recently, the US and China reached a temporary truce after a months-long trade war, which Spence said was a “great start” to building more confidence among industries, “if it actually happens.”
“We should see new orders come in, export orders, new orders,” he said. “Until they start showing some consistent upward trends and expansion, I think we’re going to be where we are.”
S&P October PMI report It provided a somewhat positive outlook for the sector, registering 52.5% in October, up 0.5% from September. According to the rating agency, the economy improved with increased production and new orders. However, much of the growth came from the domestic market as exports declined due to tariffs.
Chris Williamson, chief business economist at S&P’s Global Market Intelligence, said in a statement that US manufacturers reported a good start to the fourth quarter, but “lift the hood and the picture is not so healthy.”
Williamson raised concerns about an “unprecedented increase” in unsold stock linked to weaker sales, which could slow production unless demand picks up again.
“Companies have also become less optimistic about the year ahead, and sentiment has eased to near the gloomy levels seen around the April tariff announcements,” he said. Uncertainty over US trade policy has dampened business sentiment, exacerbated by domestic political concerns such as the federal government shutdown, Williamson added.
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