US manufacturing contracts further in October; supplier delivery times lengthen

U.S. manufacturing contracted for an eighth straight month in October as new orders remained subdued, and suppliers were taking longer to deliver materials to factories against the backdrop of tariffs on imported goods.

The Institute for Supply Management (ISM) said on Monday its manufacturing PMI fell to 48.7 last month from 49.1 in September. A reading below 50 indicates contraction in manufacturing, which accounts for 10.1% of the economy.


Still, the PMI remained above 42.3, a level that the ISM said over time was consistent with an expansion of the overall economy.

Economists polled by Reuters had forecast the PMI edging up to 49.5. A month-long shutdown of the U.S. government is, however, making it difficult to get a good read of the economy. The shutdown, on track to be the longest on record, has caused a government economic data blackout.

Prior to the shutdown, the economy appeared to be on solid footing for much of the third quarter, spurred by consumer spending and to some extent business investment in artificial intelligence. But the shutdown could undercut consumer spending as food aid for nearly 42 million people lapsed on Saturday.

Consumer spending is mostly being driven by high-income households, who are the biggest beneficiaries of a stock market rally, economists said.

The ISM survey's forward-looking new orders sub-index increased to a still-depressed 49.4 last month from 48.9 in September. This measure has contracted in eight of the last nine months.

TARIFFS ARE CONSTRAINING PRODUCTION AT FACTORIES

Backlog orders remained subdued as did export orders.

Production was weak after briefly rebounding in September. Manufacturers have cited tariffs as a major constraint.

The U.S. Supreme Court will on Wednesday hear arguments on the legality of President Donald Trump's sweeping import duties. Trump has defended the tariffs as necessary to protect domestic manufacturing, though economists have argued it is impossible to restore the industry to its former glory because of structural issues, including worker shortages.

Tariffs are gumming up supply chains, resulting in longer delivery times to factories. The ISM survey's supplier deliveries index increased to 54.2 from 52.6 in September. A reading above 50 indicates slower deliveries.

Factories continued to pay more for inputs, though the pace of price increases moderated. The survey's prices paid measure eased to a still-high 58.0 from 61.9 in the prior month.

That would support some economists' views that the hit to inflation from tariffs could be a one-time boost to the price level.

Factory employment remained weak. The ISM has noted that "layoffs and not filling open positions remain the main headcount management strategies." (Reporting by Lucia Mutikani, Editing by Andrea Ricci)