S&P’s U.S. Manufacturing Purchasing Managers Index (PMI) is an indicator measuring how the manufacturing sector is faring. The latest (October) finding is out today. It contains good news (fastest demand growth in 20 months), and the index reading of 52.5 for October is up from 52, the third consecutive month above the 50 (no change) mark. The increase in new orders was the best recorded in 20 months.
But . . .
The Trump tariffs are leaving a mark too (not in a good way). Although some manufacturers are expecting “to benefit in time” from reshoring to the U.S., higher import taxes are biting now: “Tariffs also continued to underpin a steep level of cost inflation in the manufacturing economy.” The “good” news (depending on whose perspective you are looking at) is that more of those tariff costs were passed on than in September.
Growth is coming from the domestic economy. Exports declined for the fourth consecutive month (and at the fastest rate since July), which is interesting given a dollar quite a bit below its levels at the beginning in the year. According to S&P, “tariffs reportedly remained the primary driver behind the drop in exports, with sales declining to key markets such as Canada, China, Europe and Mexico.”
Uncertainty over tariffs is holding back hiring and “dampening business spirits.” The difficulties they are causing are not confined to exports, with disruptions (predictably enough) also reported to the supply chains of the goods from abroad required by U.S. manufacturers.
Most worrying, according to Chris Williamson, chief business economist at S&P Global Market Intelligence, was “the unprecedented [over the 18 years of the survey] rise in unsold stock reported in October, widely linked to weaker than anticipated sales to customers, especially in export markets, which could trigger a downshifting of production in the coming months unless demand revives.”
The logic of that is, at best, fewer new jobs.