U.S. Manufacturing Contracts Again in October as Supplier Delays Worsen
U.S. manufacturing activity declined for the eighth consecutive month in October, according to the Institute for Supply Management (ISM), as weak demand and longer supplier delivery times continued to weigh on factory output.
The ISM’s manufacturing PMI fell to 48.7 in October from 49.1 in September. A reading below 50 signals contraction in the sector, which represents about 10% of the U.S. economy. Despite the drop, the PMI remained above 42.3, a threshold historically consistent with broader economic growth.
Economists surveyed by Reuters had expected a slight uptick to 49.5, but the ongoing U.S. government shutdown has complicated economic readings. The shutdown — now poised to become the longest in American history — has disrupted access to critical federal data, creating uncertainty around economic trends.
Consumer Spending and AI Investment Keep Growth Afloat
Before the shutdown, the U.S. economy showed resilience in the third quarter, supported by consumer spending and growing business investment in artificial intelligence. However, economists warn that the suspension of food aid for over 42 million Americans could weaken household spending in the weeks ahead.
So far, spending strength has come mostly from high-income households, who have benefited from the recent stock market rally, analysts noted.
Orders and Production Stay Weak
The ISM’s new orders index rose slightly to 49.4 in October from 48.9 in September but remained in contraction territory for the eighth time in nine months. Both export and backlog orders stayed subdued, signaling persistent weakness in global and domestic demand.
Factory production levels also slipped after showing a modest rebound in September. Manufacturers cited tariffs on imported goods as one of the key factors limiting output and supply chain efficiency.
Tariffs and Supply Chain Strain
The U.S. Supreme Court is scheduled to hear a case this week regarding the legality of President Donald Trump’s import tariffs. While Trump has argued that tariffs are vital to protect U.S. industries, many economists believe structural challenges — such as labor shortages and globalization — make a full manufacturing revival unlikely.
Tariffs have also disrupted supply chains, leading to slower deliveries of materials. The ISM’s supplier deliveries index rose to 54.2 from 52.6, indicating longer delivery times.
Meanwhile, input costs for manufacturers remain elevated. The ISM’s prices paid index eased slightly to 58.0 from 61.9, suggesting that while inflation pressures persist, they may be moderating. Some economists say the inflationary impact of tariffs could prove temporary.
Factory Employment Remains Weak
Employment in the manufacturing sector continues to lag. The ISM reported that most factories are relying on layoffs or freezing new hires to manage labor costs amid weak production growth.
