Manufacturing activity slowed more than expected in October, according to the latest report from the Institute for Supply Management, released on Monday.
The ISM’s manufacturing purchasing managers’ index fell to 48.7 from 49.1, with any reading below 50 indicating contraction.
The data was released as markets scrambled for any updates on jobs and inflation amid the government shutdown. The report showed inflation moderating while job growth remained in negative territory for another month.
The data told a story of falling demand—one that will most likely have a greater impact on employment than inflation, consistent with the Federal Reserve’s message following two rate cuts.
Tariffs remain the top concern for manufacturers, even for domestic producers who were expected to benefit from trade barriers. Volatility in trade policy and the difficulty of re-shoring production have continued to pose major challenges.
Consider the comment from one respondent in the machinery subsector:
“Tariffs continue to be a large impact to our business. The products we import are not readily manufactured in the U.S., so attempts to re-shore have been unsuccessful. Overall, prices on all products have gone up, some significantly. We are trying to keep up with the wild fluctuations and pass along what costs we can to our customers.”
While it is likely that the worst of the trade uncertainty has passed, the manufacturing sector is not yet out of the woods. Rising input prices and the quest to develop sustainable reshoring strategies will remain defining features for at least the next 12 months.
Read more insights on the economy and the middle market from RSM’s global team of economists.
