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By Lucia Mutikani
WASHINGTON (Reuters) - U.S. manufacturing contracted sharply in October after showing signs of improvement in prior months as new orders and employment slumped, likely reflecting strikes by the United Auto Workers (UAW) union against Detroit's Big Three car makers.
The Institute for Supply Management (ISM) said on Wednesday that its manufacturing PMI dropped to 46.7 last month from 49.0 in September, which was the highest reading since November 2022. It was the 12th consecutive 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 unchanged at 49.0. The PMI was probably pulled down by the UAW strikes at assembly plants owned by Ford Motor, General Motors and Chrysler parent Stellantis across the country, which disrupted supply chains and forced automakers to furlough and lay off thousands of non-striking workers.
The automakers have since reached tentative agreements with the UAW, which could see the PMI rising in November.
Though manufacturing, which accounts for 11.1% of the economy, is struggling under the weight of higher borrowing costs, the PMI likely exaggerates the weakness in the industry. Data from the Federal Reserve last month showed production of long-lasting manufactured goods rising at a brisk clip in the third quarter. Nondurable manufacturing output, however, fell.
The ISM survey's forward-looking new orders sub-index fell to 45.5 last month from 49.2 in September. Production at factories continued to expand, though barely. The production index fell to 50.4 from 52.5 in the prior month.
Backlog orders were little changed at a depressed level. Inventories at factories continued to be depleted, which bodes well for future production.
Prices for factory inputs were subdued. The survey's measure of prices paid by manufacturers rose to a still-depressed reading of 45.1 from 43.8 in September. This likely reflected slight delays getting some materials from suppliers.
The survey's measure of supplier deliveries rose to 47.7 from 46.4 in the prior month. A reading below 50 indicates faster deliveries.
Factory employment dropped, reversing the improvement seen in September. The survey's gauge of factory employment decreased to 46.8 from 51.2. This measure has not been a reliable predictor of manufacturing payrolls in the government's closely watched employment report. The UAW strikes, however, likely reduced manufacturing payrolls in October.
The government reported last week that there were at least 30,000 UAW members on strike during the period it surveyed business establishments for October's employment report.
According to a Reuters survey of economists factory payrolls likely declined by 10,000 jobs last month after increasing 17,000 in September. That would contribute to lowering overall nonfarm payrolls gains to 180,000 jobs from 336,000 in September. The government will publish October's employment report on Friday.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
