The manufacturing sector lost 24,000 jobs in August, following an upward-adjusted addition of 6,000 in July, according to the Bureau of Labor Statistics. Using a three-month moving average, manufacturing job additions have maintained a breakeven pattern for the past two and a half years but with the moving average hitting a cycle low in August. The total number of manufacturing employees remained steady at approximately 12.93 million, reflecting a small decrease from the previous month’s reading of 12.95 million.
While the manufacturing employment rate has risen over the past few months to 3.5%, it remains below the broader economy’s rate of 4.2%. Additionally, open manufacturing jobs remain steady with over 500,000 open jobs indicating demand for skilled workers remains high. With economic and political uncertainty leading to cautious hiring practices and reduced output, manufacturers are likely delaying filling open jobs until the outlook becomes clearer.
Manufacturing activity continued to contract in August, driven by weak demand and declining output, according to the Institute for Supply Management manufacturing index released earlier this week.
The index ticked up to 47.2 from 46.8 but remained in contraction territory for the fifth consecutive month, signaling ongoing challenges for manufacturers. A reading below 50 indicates contraction.
Production, new orders, supplier deliveries, and employment all fell on the month, while prices paid by businesses rose. To maintain profitability amid the backdrop of lower demand and rising input costs, we anticipate manufactures will continue to prioritize cost management and demand forecasting strategies aimed at optimizing working capital requirements and inventory levels, addressing supply chain challenges, adjusting production plans, and identifying and removing excess costs.
Favorable developments in the August ISM data include a slowing pace of employment declines with a current month reading of 46 compared to 43.4 in the prior month. Additionally, one area that expanded in the index was inventories which rebounded to 50.3, the first month above 50 since November 2023, compared to 44.5 in the prior month, indicating a rebuilding of inventory levels by manufacturers after an extended period of reduction.
What’s next?
Muted demand is expected to persist over the next several months due to current federal monetary policy and election-related uncertainty. However, these challenges could transform into tailwinds for manufacturers, spurring growth and innovation as we approach the end of the year. The economic outlook is likely to become clearer post-election, and anticipated interest rate cuts by Federal Reserve policymakers could further stimulate the sector, providing manufacturers a more favorable environment for increasing output, hiring levels, and capital investments.
