The October ISM manufacturing index fell to 50.2, the weakest since May 2020 from 50.9 but that was a hair above the estimate of 50 which we know is the breakeven between expansion and contraction. Some very important components though are below 50. New orders at 49.2 for the 4th month in the past 5 at 49.2 (though up 2.1 pts m/o/m). Backlogs fell 5.6 pts to 45.3, the first time below 50 since June 2020. Exports were down by 1.3 pts to 46.5, the 3rd straight month below 50 while imports dropped by 1.8 pts to 50.8. Inventories were down by 3 pts at the manufacturing level and for customers it held at 41.6, still well below 50. Employment rose 1.3 pts to exactly 50 after falling by 5.5 pts last month. Supply constraints as measured by Supplier Deliveries fell below 50 for the first time since March 2009 (remember though measuring direction, not degree). In turn, prices paid also fell below 50 at 46.6 from 51.7 and that is the lowest since May 2020.
Of the 18 industries surveyed, 8 saw growth vs 9 in September, 10 in August, 11 in July, 15 in the previous two months and 17 in April. That’s the least amount since May 2020. Only 5 now are paying higher prices vs 10 in September and 17 back in June. Just 3 industries saw an uptick in new orders, the same number as those seeing an increase in backlogs. Ten industries saw a contraction vs 7 in September.
Of note, chemicals and computer/electronics sectors are particularly in contraction, with the former for the 4th straight month. And imagine that chemicals go into just about everything manufactured.
A quote from a chemical company: “Customers are canceling some orders. Inventories of finished goods increasing. Expect some bounce back as some customers may be waiting for commodity prices to decline further.” One from the tech space, “Flat business activity; continued electronics market challenges.” Here is one more, from the machinery industry, “We have seen a general pullback in available capital budgets from our customers, and that is having a significant impact on our sales in the fourth quarter.”
Bottom line, while this figure points to technical expansion still, it’s barely and some key internals are below 50 so pay attention to the rate of change here because we seem to be just a month away from that technical contraction. The fall in supplier deliveries and prices paid is also notable and something the Fed should be happy with.
US Treasuries are selling off after the number and the dollar is rallying but I’m not sure why if one looks under the hood on this data. On the other hand, I guess it was the JOLTS data that explains the response even though the figure is dated. The number of job openings in September totaled 10.72mm vs 10.28mm in August and about 1mm above the estimate. It is though the 2nd month below 11mm after an 8 month run above 11mm. Of note, hiring’s and quitters both fell m/o/m.
ISM
New Orders
Prices Paid
JOLTS Job Openings
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.