U.S. manufacturing took a step further towards recovery in September as production picked up and employment rebounded, according to a survey on Monday that also showed prices paid for inputs by factories falling considerably.
The third straight month of improvement reported by the Institute for Supply Management (ISM) strengthened economists’ expectations that economic growth accelerated in the third quarter, despite higher interest rates. That was reinforced by a Commerce Department report showing construction spending was solid in August, driven by the building of houses and factories.
The economy’s continued resilience raises hope that a recession could be averted in the near term.
“The soft landing narrative still holds as we enter the final quarter of 2023,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.
The ISM said that its manufacturing PMI increased to 49.0 last month, the highest reading since November 2022, from 47.6 in August. Still, September marked the 11th straight month that the PMI remained below 50, which indicates contraction in manufacturing. That is the longest such stretch since the 2007-2009 Great Recession.
Economists polled by Reuters had forecast the index edging up to 47.7. Last month’s rise pulled the PMI above the 48.7 level that the ISM says over time indicates an expansion of the overall economy. Growth estimates for the third quarter are as high as a 4.9% annualized rate. The economy grew at a 2.1% pace in the April-June quarter.
A survey from S&P Global also struck a fairly optimistic note on manufacturing.
Five manufacturing industries in the ISM survey reported growth last month, including textile mills and primary metals.
Among the 11 industries reporting contraction were computer and electronic products, machinery, as well as electrical equipment, appliances and components.
Comments from respondents in the survey remained mixed. Makers of transportation equipment said “orders and production remain steady, and we are maintaining a healthy backlog.”
Source : Reuters