ISM October report reveals irony of US trade policies

PMI readings below 50% indicate contracted growth in the manufacturing economy. Readings that register above 50 percentage points reflect its growth.  

Each of the report’s key indicators clocked in outside optimal ranges for manufacturing growth. For example, the new order, production, backlog of orders, and employer subindices each registered a contraction for the month.  

The price index reading fell below 60% for the first time in nine months, but is still considered to be “in expansion,” also known as still increasing. Meanwhile, supplier deliveries are slowing, customer inventories remain too low, raw material inventories are contracting, and both imports and exports are contracting. Employers reported managing headcounts rather than hiring more employees.  

Uncertainty named as culprit of stunted manufacturing growth 

“In October, US manufacturing activity contracted at a faster rate,” said Susan Spence, chair of the Institute for Supply Management Manufacturing Business Survey Committee.  

Spence noted that sustained uncertainty in the overall economic landscape caused the two-month manufacturing growth gains to stall before contracting again.  

“A chain reaction of one-month index improvements started with new orders in August and flowed to production in September. In October, it manifested in a 1.7-percentage-point increase in the backlog of orders index. These short gains have not appeared to translate into sustained growth for the sector, a reflection of continuing economic uncertainty,” Spence said.  

Spence’s analyses highlighted potential bright spots for the manufacturing sector. She noted that demand indicators are improving, despite still showing contraction. She also said the deterioration in production, output, and employment is slowing. 

Two of the six largest manufacturing industries reporting expansion in October were the food, beverage and tobacco products industry, and the transportation equipment industry. Six manufacturing industries reported growth, but twelve industries reported contraction in October. 

Manufacturers report hurdles to growth in October  

Respondents in multiple manufacturing sectors voiced frustration with the constraints to growth. Citing uncertainty and tariffs as hindrances to overall demand, the respondents report stunted overall sales.  

“Business continues to remain difficult, as customers are cancelling and reducing orders due to uncertainty in the global economic environment and regarding the ever-changing tariff landscape,” said a participant from the chemical manufacturing industry.  

A fabricated metal products professional said, “Sales continue to underperform in our automotive OEM and industrial divisions. Our aerospace and automotive aftermarket are the only areas performing slightly above budget. This is the third month of lower-than-expected sales, and the remainder of the year outlook is not looking better. Sales are expected to be slightly less than in 2024.” 

One machine manufacturing respondent explained the knock-on effect of tariffs for manufacturers like him.  

“The tariff trade war has negatively impacted agricultural export markets, driving down demand and price. This negatively impacts farmer revenue and the likelihood of farmers investing in new equipment,” the machine manufacturer reported.  

At ISM’s media conference call on Monday, one participant expressed confusion around the promise of tariffs and the current reality for US manufacturers, saying: “The manufacturing sector is supposed to be a beneficiary of US trade and tariffs policy.”