State of Manufacturing

Economic activity in the manufacturing sector contracted in August for the fifth consecutive month and the 21^st time in the last 22 months, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

“While still in contraction territory, U.S. manufacturing activity contracted slower compared to last month. Demand continues to be weak, output declined and inputs stayed accommodative,” says Timothy R. Fiore, CPSM, C.P.M., chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee.

According to Fiore, “demand remains subdued,” as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and election uncertainty. Data shows production execution was down compared to July, putting additional pressure on profitability. Though he noted suppliers continue to have capacity, with lead times improving and shortages not as severe.

“[Approximately],65% of manufacturing gross domestic product (GDP) contracted in August, down from 86% in July,” Fiore says. “The share of manufacturing sector GDP registering a composite PMI® calculation at or below 45% (a good barometer of overall manufacturing weakness) was 33% in August, a 20-percentage point improvement compared to the 53% reported in July.”

Caption: While the Ford F-Series secured the top spot in U.S. new sales during August 2024, pushing 65,408 trucks out the door, year-over-year model sales are down 6.5%. The Chevrolet Silverado is a distant second at 44,018 units sold during the same timeframe but is up 3.3% year-over-year. Toyota, Honda and Tesla round out the top five in U.S. new vehicle sales, with the CR-V, RAV4 and Model Y +18.1, +20.4 and -2.9% year-over-year.

Photo source – Ford Motor Company

Important Takeaways, Courtesy of the Manufacturing ISM® Report On Business®:

Demand slowing was reflected by the (1) New Orders Index dropping further into contraction, (2) New Export Orders Index contracting slightly faster, (3) Backlog of Orders Index remaining in strong contraction territory and (4) Customers’ Inventories Index at the “just right” level.
Output (measured by the Production and Employment indexes) continued in moderate contraction with production sagging further, while employment contracted slower as compared to July. Panelists’ companies reduced production levels month-over-month as headcount reductions continued in August.
Inputs – defined as supplier deliveries, inventories, prices and imports – generally continued to accommodate future demand growth, with inventory growth attributed to a supply demand timing mismatch.

What Respondents Are Saying, According to the Manufacturing ISM® Report On Business®:

“A noticeable slowdown in business activity. Staffing and production rationalization has been triggered. Previous optimism about future growth has been dashed.” [Chemical Products]
“Backlog has dropped in half as invoicing remains strong, but orders have slowed significantly. Hoping to see orders pick back up for the fourth quarter and into 2025 but expect third quarter to remain slow for incoming orders.” [Transportation Equipment]
“After a slow start and lower year-over-year sales volume during the first half of the year, we are now seeing a mild increase in year-over-year sales volume, along with more steady growth.” [Food, Beverage & Tobacco Products]
“Business outlook is good. Recovery from the electronics slowdown is strong for the second half of the year.” [Computer & Electronic Products]
“New order intake is sluggish at best. Interestingly, even though orders are down, inquiries are up. Customers have indicated capital has been approved for equipment purchases, but they were directed to put projects on hold until the fourth quarter of 2024. This indicates the uncertainty around the election. We anticipate a strong end of the year, with a rise in backlog going into 2025.” [Machinery]
“Our order levels are on a slow, steady decline; it looks like the trend will continue through the end of the year. We are downsizing through attrition and not hiring backfills, but there have been no layoffs to date. The bright spot is a few customer programs have helped increase orders for parts, resulting in some production areas to be very busy while others have little work. Redeploying people where we can.” [Fabricated Metal Products]
“New orders continue to be strong and inventories are slightly down as a result. Supplier lead times seem to be creeping back up in certain categories.” [Miscellaneous Manufacturing]
“Business is cooling down, and we don’t expect a rebound until after the election is over. As we build our 2025 budget, we continue to have deep concerns about the added environmental costs on energy.” [Paper Products]
“Order book remains strong for now. We are preparing for a slowdown in U.S. auto sales. We are running overtime to keep pace, as hiring hourly employees has been difficult. Some walk off the job within hours because they cannot handle factory work.” [Primary Metals]
“High interest rates are curtailing consumer spending on large discretionary spending for furniture, cabinetry, flooring and decorative trim, which has affected our industry sales potential. At the same time, pent-up demand seems to be growing for housing and remodeling. Interest rate cuts may not happen soon enough to have an impact this year.” [Wood Products]

KPI – September 2024: State of Manufacturing

By Pat Curtin