Background on the Manufacturing Sector and ISM Index
The US manufacturing sector has experienced a contraction for the seventh consecutive month in September, although the rate of decline has slightly eased due to improvements in demand and production.
The ISM Manufacturing Index rose to 49.1 points in the past month, slightly above August’s 48.7 points.
Despite this minor improvement, the figure remained below the 50-point threshold that distinguishes expansion from contraction.
Key Observations from the ISM Report
Susan Spence, president of the ISM survey, stated: “In September, US manufacturing activity contracted at a slightly slower pace, with production growth being the most significant factor in the 0.4 percentage point gain in the PMI manufacturing index.”
However, she added that the decline in new orders and inventories indices outweighed the increase in the production index, rendering the improvement “insignificant.”
Impact of Trade Policies on the Manufacturing Sector
The mood among survey respondents was gloomy, with one noting that their business remains “very depressed,” attributing the blame to extreme trade tariffs imposed by US President Donald Trump.
The widespread and unexpected implementation of tariffs by the President has affected some companies more than others, with those relying heavily on imports for raw materials being hit the hardest.
“Tariffs continue to generate additional costs,” noted an respondent from an oil and coal products company.
“Steel tariffs are killing us,” stated another respondent from a manufacturing firm.
Key Questions and Answers
- What is the ISM Manufacturing Index? The ISM Manufacturing Index is a key economic indicator that measures the overall health of the US manufacturing sector. It is calculated based on responses from purchasing and supply management executives regarding economic conditions.
- Why is the 50-point threshold significant? The threshold separates expansion from contraction in the manufacturing sector. A reading above 50 indicates expansion, while a reading below 50 suggests contraction.
- How have tariffs affected the manufacturing sector? Tariffs imposed by President Trump have created additional costs for many companies, particularly those relying on imported raw materials. The steel tariffs have been especially detrimental to manufacturing firms.
