Manufacturing growth in U.S. nearly stopped

Due to reduction in new orders, caused by aggressive interest rate hike delivered by the Fed, the pace of manufacturing growth registered in the U.S. this September was the slowest over nearly 2 and a half years. The rate hike was aimed at cooling the demand and inflation curbing.

According to results of a survey released this week by the Institute for Supply Management (ISM), there also was a decline of employment in the manufacturing sector last month. Prior to this, the indicator had already declined three times during the year.

Timothy Fiore, Chair of Manufacturing Business Survey Committee at ISM, commented on the matter. He stated that businesses are currently managing their number of personnel amid the uncertainty of medium- and long-term demand. The process is performed by freezing new recruitments and transferring the staff to other positions, which are often lower than initial ones.

Still, Fiore noted that businesses didn’t mention massive firings, which, in his opinion, might point to their confidence in near-term demand.

Will Compernolle, a senior economist at FHN Financial in New York, also shared his opinion on the current situation, calling it the economic cooling the Fed is aiming to. He also mentioned that it still might be just a representation of a consumers’ turn to services instead of goods.

According to the ISM data, manufacturing PMI decreased to the level of 50.9, which is its lowest value since May 2020, while its previous value was 52.8 in August. As it was stated by ISM, the index decline resulted from a process of companies getting prepared for a probable reduction of demand in the future.

The slowing pace of manufacturing is also partially connected to the reorientation of consumers, who started to prefer services to goods. According to the data released by the government last week, there was almost no rising in spending on long-lasting manufactured goods registered in August, while spending on services increased.

The current situation applies to construction as well. The volume of decrease of construction spending noted in the latest report, published by the Commerce Department, is the record one over a period of 1.5 years.

As it was stated by senior economist at BMO Capital Markets in Toronto Jennifer Lee, the mentioned facts are directly connected to the growth of borrowing costs and lesser demand, and there’s still a possibility of mild recession.

Besides the mentioned indicators, there was another one which showed a decline. Factory employment also decreased, reaching the level of 48.7, while its previous value was 54.2 in August. This index turned out to be an imprecise tool for forecasting the figures of manufacturing payrolls in employment report, closely supervised by the government. Despite its having decreased four times over the year, the government’s report still shows a consistent growth.

Meanwhile, a stable demand for employees is still there despite slowdown in job growth. 11.2 million unoccupied jobs were registered in the economy by the end of July, with two vacancies being opened for every unemployed person. The number of initial applications for unemployment benefits also remain low.

According to the words of Citigroup economist in New York Isfar Munir, there’s a possibility that employees have left the manufacturing industry on their own choice, preferring other occupation in other economical spheres.