US manufacturing eyes recovery in September, orders contract

WASHINGTON, Oct 1 (Reuters) – U.S. manufacturing edged toward recovery in September, though new orders and employment were subdued as factories continued to grapple with the fallout from tariffs on imports. The Institute for Supply Management (ISM) said on Wednesday its manufacturing PMI increased to 49.1 last month from 48.7 in August. It was the seventh straight month that the PMI remained below a reading of 50, indicating contraction in manufacturing. Economists polled by Reuters had forecast the PMI rising to 49.0. The survey, together with other private-label data, will assume greater importance among investors seeking to assess the health of the economy after the U.S. government shut down at midnight on Tuesday. The funding lapse will delay the publication of key economic data, including the closely watched employment report for September that was due on Friday. While some of the uncertainty surrounding President Donald Trump's sweeping tariffs has been resolved, the duties remain a constraint for manufacturing, which accounts for 10.1% of the economy. But Trump also appears not done with tariffs, recently announcing a raft of duties including a 25% levy on heavy-duty trucks, 50% tariff on imported kitchen cabinets and bathroom vanities, as well as a 30% tax on upholstered furniture. 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. The ISM survey's forward-looking new orders sub-index dropped to 48.9 from 51.4 in August. This measure has contracted in seven of the last eight months. Backlog orders remained subdued as did export orders. Though production rebounded, factory employment remained depressed. The ISM has noted that "layoffs and not filling open positions remain the main head-count management strategies." Delivery times lengthened further last month, keeping prices paid by factories for materials elevated. The ISM survey's supplier deliveries index increased to 52.6 from 51.3 in August. A reading above 50 indicates slower deliveries, and last month's rise likely accounted for some of the improvement in the PMI. A lengthening in suppliers' delivery times is normally associated with a strong economy. But in this case slower supplier deliveries likely indicated bottlenecks in supply chains related to tariffs. The survey's prices paid measure ticked down to a still-lofty 61.9 last month from 63.7 in August, suggesting higher goods prices in the pipeline from tariffs. (Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)

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