The Institute for Supply Management’s latest Manufacturing Purchasing Managers Index (PMI) — regarded as a reliable barometer for the health of the U.S. manufacturing sector — suggests what many economists had predicted to arrive at the onset of 2022’s fourth quarter: industrial activity is slowing down considerably.

The index’s Oct. 3 reading showed a mark of 50.9 for September, a 1.9-percentage point decrease from August and to the lowest figure since May 2020 during the height of COVID-19 factory shutdowns across the country.

After riding high from the second half of 2021 through the middle of 2022, the PMI has steadily decreased in recent months. It was as high as 60.8 in October 2021 and held steady in the mid-50s through May 2022 (56.1) before sliding to 53.0, 52.8 and 52.8 during June, July and August, respectively until September’s new low point.

For the index, any reading above 50.0 indicates expansion and anything below that indicates contraction. So while the latest reading suggests expansion for the 28th consecutive month, its by the weakest margin in two and a half years.

“The U.S. manufacturing sector continues to expand, but at the lowest rate since the pandemic recovery began,” noted Timothy Fiore, CPSM, C.P.M. and chair of the ISM Manufacturing Business Survey Committee. “Following four straight months of panelists’ companies reporting softening new orders rates, the September index reading reflects companies adjusting to potential future lower demand.”

The September index’s decline was driven largely by sizable month-to-month declines in factors of new orders (-4.2 to 47.1), employment (-5.5 to 48.7) and supplier deliveries (-2.7 to 52.4). Backlog of orders (-2.1 to 47.8) and new export orders (-1.6 to 52.6) also saw declines, while production (+0.2 to 50.6), inventories (+2.4 to 55.5), customer inventories (+2.7 to 41.6) and imports (+0.1 to 52.6) saw increases.

Of the PMI’s six biggest manufacturing industries tracked, four — machinery; transportation equipment; food, beverage & tobacco products and computer & electronic products — registered moderate-to-strong growth in September. Three other industries — nonmetallic mineral products; plastics & rubber products; and appliances & components — saw modest growth.

MANUFACTURING AT A GLANCE
September 2022

“Panelists’ companies slowed hiring activity; month-over-month supplier delivery performance was the best since December 2019; prices growth slowed notably (with the index at 60 percent or lower) for the third consecutive month; and lead times continue to ease for capital equipment and production materials,” Fiore detailed. “Markedly absent from panelists’ comments was any large-scale mentioning of layoffs; this indicates companies are confident of near-term demand, so primary goals are managing medium-term head counts and supply chain inventories.”