By Jeffry Bartash
The numbers: A key barometer of American factories fell to a 28-month low of 50.9% in September as high inflation and rapidly rising U.S. interest rates rattled the economy.
The Institute for Supply Management’s manufacturing survey declined from 52.8% in August.
While numbers above 50% signify economic growth, the index has fallen sharply since earlier in the year. New orders have declined, particularly exports, and manufacturers aren’t hiring as many workers.
The slowdown in the economy, however, is starting to ease price pressures as the U.S. battles the highest inflation in 40 years. The prices businesses pay for supplies sank for the sixth month in a row and touched the lowest level in more than two years.
The ISM report is viewed as a window into the health of the U.S. economy. Economists polled by The Wall Street Journal had forecast the index to drop to 52%.
Big picture: Rising interest rates are acting as an increasing headwind on the economy and manufacturers are feeling the pinch. They are still growing for now, but some are adopting hiring freezes in anticipation of demand weakening even further.
“Companies are saying we don’t need as many employees,” said Timothy Fiore, chairman of the survey. “That is a clear change compared to where we have been a year or a year and a half ago.”
With the Federal Reserve expected to keep raising rates, uncertainty about the economy has gown and buinessses are being more cautious.
“Business is flat to down due to inflation and interest rates,” an executive at a company that makes metal parts told ISM.
The index of new orders slid 4.2 points to 47.1%, also the lowest reading since May 2020.
The production barometer inched up to 50.6% from 50.4%.
The employment gauge dropped 5.5 points to 48.7%. “Companies are now managing head counts through hiring freezes and attrition,” Fiore said.
The prices index, a measure of inflation, declined to 51.7% from 52.5%. That’s the lowest level since June 2020.
Looking ahead: “Manufacturing will lose more steam in the months ahead as slackening goods demand and weak business investment depress activity,” said economists Oren Klachkin and Kathy Bostjancic at at Oxford Economics in a note to clients.
Market reaction: The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.0091% and S&P 500 /zigman2/quotes/210599714/realtime SPX -0.16% surged in Monday trades. Stocks have been under pressure for the past few weeks and have lost a lot of ground.