Contraction in U.S. manufacturing is continuing, with activity reaching a ten-year low in September, as economic and political uncertainty weigh on the industrial sector.
According to the latest Institute for Supply Management report, manufacturing reached its lowest point since June 2009 after a second straight month of slowing. The index registered 47.8% in the month, down from 49.1% in August (any figure below 50% signals a contraction); producers continue to face headwinds amid the ongoing trade tensions between the United States and China. These results are consistent with our own RSM US Manufacturing Outlook Index, which has been forecasting a slowdown in manufacturing activity since July, when it declined below the zero level.
Global trade continues to be the most significant issue, demonstrated by the contraction in new export orders that began in July 2019. The new export orders index registered only 41%, the lowest level since March 2009, down from the August reading of 43.3%. In addition, the backlog of orders index contracted for the fifth straight month, and at a faster rate, pointing to continued weakness in manufacturing activity in the months ahead.
As U.S. factory activity continues its retreat, the World Trade Organization issued a warning on global commerce on Oct. 1, in which the international body cut its global merchandise trade growth forecast to 1.2% from 2.6% for 2019. Given the current challenges, and the threat of new tariffs on imported automobiles and automotive parts, middle market manufacturers need to monitor the environment in order to respond quickly to changes in demand, ramping up or scaling back purchases of materials they use in anticipation of demand for their finished products.