US Manufacturing Slump Deepens as Key Index Misses Forecasts
The ISM Manufacturing PMI fell for the eighth consecutive month to 48.7, signaling a persistent industrial slowdown amid shifting Fed policy expectations.
The U.S. manufacturing sector showed further signs of deterioration in October, contracting for the eighth consecutive month as high interest rates and slowing demand continue to weigh on industrial activity. The Institute for Supply Management (ISM) reported Monday that its manufacturing Purchasing Managers’ Index (PMI) registered 48.7, a drop from September's 49.1 and below analyst expectations of 49.5.
A reading below 50 indicates contraction in the sector. The persistent weakness underscores the challenges facing the goods-producing side of the economy, even as other areas show resilience. The data complicates the outlook for the Federal Reserve, which is trying to gauge whether its recent monetary policy adjustments are sufficient to guide the economy to a soft landing.
Beneath the headline number, the report’s sub-indexes painted a picture of broad-based weakness. The Production Index fell back into contraction at 48.2, a 2.8-point drop from the previous month. The New Orders Index, a key barometer of future demand, remained in contractionary territory at 49.4. Meanwhile, the Employment Index continued to signal job losses in the sector, ticking up slightly but still weak at 46.0, according to the official ISM report.
One of the few bright spots in the report was a significant deceleration in input costs. The Prices Index fell sharply to 58.0 from 61.9 in September. While still indicating rising raw material costs, the slower pace of increases suggests that inflationary pressures within the factory supply chain are easing, a welcome sign for policymakers at the Fed.
Initial market reaction to the downbeat report was unexpectedly muted. U.S. stocks were mixed in afternoon trading, while U.S. Treasury yields, which typically fall on signs of economic weakness, edged higher. The 10-year Treasury yield rose 3.3 basis points to 4.110%, a move attributed more to ongoing optimism in equity markets than a reaction to the manufacturing data.
"The market appears to be looking past the industrial slump and focusing on the narrative that easing inflation gives the Fed more room to maneuver," said one analyst. The data release from PR Newswire comes just days after the Federal Open Market Committee (FOMC) lowered its benchmark interest rate by 25 basis points in late October, citing concerns about slowing growth.
The persistent manufacturing downturn is intensifying the debate within the central bank over the future path of interest rates. According to reporting from FXStreet, futures markets are now pricing in approximately a 60% probability of another rate cut at the Fed's December meeting. However, officials remain publicly divided, with governors like Christopher Waller advocating for another cut while others counsel a more patient, data-dependent approach. The October ISM report provides ammunition for both sides of the argument: doves will point to the headline contraction as a reason for more stimulus, while hawks can highlight the still-elevated price pressures as a reason for caution.