October will be a 'hard month' for PMI data: Economist

The September ISM Manufacturing PMI came in at 47.2, slightly below the 47.5 economists had projected. A reading below 50 indicates contraction in the manufacturing sector. ISM Economist Tim Fiore joins to discuss his outlook on this report.

Fiore sees some positives in the data, noting that the rate of decline remained steady from August to September. He calls this "a good thing" because it's "pretty representative of a soft landing." The biggest change this month was in production numbers, which returned to stable. Fiore states, "It's showing that the bottom is not falling out, which is really positive," alongside continual declines in unemployment.

However, Fiore warns that the next report could face headwinds such as the ongoing port strike, Boeing (BA) strike, and the fallout of Hurricane Helene. These factors could impact transportation lanes and natural gas prices, among other things.

Looking ahead, Fiore cautions, "October's gonna be a really hard month to take its data, load it into the prior data, and forecast what is gonna happen going forward."

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This post was written by Angel Smith

Video Transcript

The manufacturing sector contracting for the sixth straight month in September.

But there could be signs of hope ahead as new orders improved and prices paid for inputs declined to a nine month low.

Joining us now is Tim Fiori, chair of the Institute for Supply Management Manufacturing Business Survey Committee.

Uh Tim, it's good to see you.

So uh bottom line September ism manufacturing Tim uh the index remained in contraction 47.2 did see some, some notable swings and components but walk me through what you're seeing, Tim.

So we remained at the same rate of decline as we saw in August, which is a good thing because the 47 2 is not a major decline.

It's a moderate to mild decline.

It's in that borderline area.

It's very consistent with where we've been for the last 12 months.

Uh actually almost 24 months and it it's pretty representative of a soft landing.

So uh 47 2 this month, 47 2 last month, the biggest change this month, you know, we our our PM I is made up of the sum of five sub indexes divided by five.

So you look at new orders, you'll get production.

You look at supplier deliveries, you look at inventory, you look at employment, the, the big thing that changed this month for the positive is that our production number returned to a stable generally 50 which means it's almost like a surrogate for revenue.

So we're pretty much the same level of output in September as you were in August, which I think is a good thing.

It's showing that the bottom is not falling out, which is really positive.

I don't think anybody's expecting the top to grow that much at this point, but the bottom is not falling out.

In addition to that, we have continual declines in employment, which is the activity.

Our pa panel members are taking the right size or cost structure consistent with the latest forecast for growth going forward.

So I think it's a good report, your comment on demand.

Yes, we do see some signs, they're very weak signs, demand is still non-existent.

We've had basically 24 months of burning off the the most significant probably had in manufacturing history.

And we're now at the point where there's not that much left in the order book, we've got to get some new orders in to spur growth and investment and you know, the reentry into a growth profile.

Um and Tim all of that looking backward a little bit, although you were just talking about looking forward, but there's a couple of unusual events that could have an effect on the next survey.

There's the uh port strikes and then there is the hurricane that just took out a lot of manufacturing.

Um um a as a result of, you know, cutting a pretty broad swath across the southeast.

So how should, what should we expect in the next report?

Yeah, thanks Julie.

So that's a good lead in.

There is a third two and that's the Boeing strike.

So, ok, that, that hurricane is gonna cause the problems and data quality in October, not so much quality but our ability to read what it means, especially with respect to going forward, that hurricane is going to disrupt a whole bunch of stuff.

Most likely the transportation lanes are all gonna get messed up.

We have a lot of people out of work because factories are shut, they can't get to the, the work site and we had the Gulf that was closed down days before that hurricane came through and is just now starting up with the impact on plastics, possibly natural gas prices and so on.

So, uh what I've said so far today is that October is going to be a really hard month to take its data, load it into the prior data and forecast, what is gonna happen going forward.

But I kind of know what this looks like.

We saw it back in 2017 with the, with the big, big hurricane in August of 17.

So we'll deal with that, you know, the second one here is the port strike, this port strike has to end in a week.

If it ends in a week, then, ok, we just move on.

If it goes on beyond a week, it's gonna be a problem.

If, for instance, if it went on for a month, you're probably looking at three months worth of disruption that we're gonna have to work through.

And the sad thing is, is that it's gonna mess up the transportation lanes again.

So we won't know whether it's new demand activity that's causing the anxiety and the, the strain and the transportation chain or whether it's because they're trying to clear out what happened with the port backlog.

So another confusing data point that we'll just have to work through.

Hopefully, this thing is over in a week.

Another one is the go, no, go ahead.

Go ahead.

I'm sorry.

Yeah, last thing is the Boeing strike, our, our worst performing big six industry sector, 73% of manufacturing.

It is included in six industry sectors is our transportation equipment sector.

That is number two, it's about 15% of uh manufacturing GDP and the aerospace piece is about 35% of that.

So when you have Boeing, by far, the predominant force in aerospace and defense, when you have Boeing coming down, uh And if they stay down for an extended period of time, they will eventually shut off their supply base.

And that will lead to a lot of activity, furloughs, layoffs, lack of revenue and all that.

So, so you get three really going on here outside the global tension stuff.

That's a whole different ball game.

Boeing's gotta get back to work for themselves and for all of us, this poor strike, same thing.

Ok, you've got a good point.

Make your point.

This is a problem when you have a six year contract, nobody could have forecasted the inflation that, that these poor longshoremen went through in the last three years without a real raise.

And, and then you've got the hurricane disruptions that will be a one timer.

And you know, either way we'll be out of that by probably mid November.