A key index measuring manufacturing in the United States slowed to its lowest level in more than two years as the Federal Reserve pumps its brakes on the economy.
The Institute for Supply Management’s Purchasing Managers Index fell nearly 2 points to 50.9 in September, the third decline in three months. It is now clocking in at the lowest level since May 2020, just as the initial wave of the pandemic was wreaking havoc on the country.
The 50-point mark signifies contraction versus expansion. The index for new orders was back in contraction territory, a sign of waning demand.
The index is based on a survey of manufacturers across the U.S. Some sample comments from various sectors showed that manufacturers are still grappling with supply chain problems and are starting to feel the sting from the Fed hiking interest rates.
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“The U.S. manufacturing sector continues to expand, but at the lowest rate since the pandemic recovery began. Following four straight months of panelists’ companies reporting softening new orders rates, the September index reading reflects companies adjusting to potential future lower demand,” said Timothy Fiore, chairman of the ISM Manufacturing Business Survey Committee.
“Supply chain constraints on many items are still an issue; staffing on the production side continues to be a significant problem,” a respondent in the machinery industry said. “In contrast, we have more stock than needed on some key items — specifically imports — and have begun reducing open purchase orders and decreasing extended forecasts on those items in order to bleed down inventory.”
The Fed has been on a historic rate-hiking kick in an effort to rein in inflation. Last month, the central bank conducted another monster rate hike in its interest rate target, to the tune of three-quarters of a percentage point, or 75 basis points. It was the third such increase in just a matter of four months.
The action is designed to dampen demand and slow economywide spending. With lower demand, prices typically stabilize, although the trade-off is that economic output can contract or even fall into a recession, meaning lost jobs.
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There have been two consecutive quarters of negative gross domestic product growth, something that has traditionally been seen as a recession marker, although the labor market has remained buoyant.
“Business is flat to down due to inflation and interest rates. Hard to find and keep employees due to wage increases by competitors,” said one respondent from the fabricated metal products industry.
