In October, the U.S. manufacturing sector experienced a noticeable decline, marking a significant shift from the slight improvements seen in previous months. The downturn in this crucial sector, driven primarily by dwindling new orders and employment figures, is widely attributed to the strikes initiated by the United Auto Workers (UAW) against Detroit’s major car manufacturers, known as the Big Three.
The Institute for Supply Management (ISM) revealed that the manufacturing Purchasing Managers’ Index (PMI) plummeted to 46.7 last month, down from September’s 49.0 – the highest recorded reading since November 2022. This drop marks the 12th consecutive month that the PMI has remained below the pivotal 50-point threshold, indicating a prolonged contraction in manufacturing. This sustained slump is the most extended period of contraction since the Great Recession of 2007-2009.
Economists who participated in the Reuters poll had predicted the index would remain stable at 49.0. However, the UAW strikes at assembly plants owned by major car manufacturers, including Ford Motor (NYSE:F), General Motors (NYSE:GM), and Chrysler’s parent company, Stellantis (NYSE:STLA), adversely impacted supply chains. This disruption forced automakers to furlough and lay off thousands of non-striking employees.
Since then, automakers have tentatively resolved their differences with the UAW, potentially paving the way for an upswing in the PMI during November.
While the manufacturing sector, accounting for 11.1% of the economy, grapples with rising borrowing costs, it’s essential to recognize that the PMI may somewhat exaggerate the industry’s weakness. Recent data from the Federal Reserve demonstrated strong growth in the production of long-lasting manufactured goods during the third quarter. In contrast, the output of nondurable goods in manufacturing declined.
The ISM survey’s forward-looking sub-index for new orders fell from 49.2 in September to 45.5 last month, signaling potential challenges ahead. Factory production managed to maintain its expansion, though just barely, with the production index slipping from 52.5 to 50.4 in the previous month.
Backlogged orders remained relatively unchanged at a lower-than-desired level, while inventories at factories continued to be depleted, offering a glimmer of hope for future production.
Price pressures on factory inputs remained subdued, with the survey’s gauge for prices paid by manufacturers inching up from 43.8 in September to 45.1 last month. This marginal increase likely stemmed from minor delays in receiving materials from suppliers.
The survey’s measure of supplier deliveries inched up to 47.7 from 46.4 in the prior month, indicating a slightly faster pace in deliveries.
Factory employment took a hit, reversing the gains seen in September. The survey’s employment gauge for factories dropped from 51.2 to 46.8. It’s worth noting that this measure has not consistently predicted government-reported manufacturing payrolls. However, it is evident that the UAW strikes had a notable impact on manufacturing employment in October.
Government reports confirmed that at least 30,000 UAW members were on strike during the period when October’s employment figures were surveyed. According to a Reuters economist survey, factory payrolls likely decreased by 10,000 jobs last month, following a modest increase of 17,000 jobs in September. This trend is anticipated to contribute to a decrease in overall nonfarm payrolls, which is expected to drop from 336,000 jobs in September to 180,000 jobs in October. The official October employment report will be released by the government on Friday.
