U.S. manufacturing activity edged up in September, though new orders and employment were subdued as factories grappled with the fallout from President Donald Trump's sweeping tariffs.
The Institute for Supply Management (ISM) survey and other private-label data will assume greater importance among investors seeking to assess the health of the economy after the U.S. government shut opens new tab down at midnight on Tuesday, delaying the publication of key economic data, including the closely watched employment report for September that was due on Friday.
Import duties dominated responses in the ISM survey on Wednesday, with some manufacturers of miscellaneous goods complaining "steel tariffs are killing us." Paperwork related to tariffs was also causing materials to be held up at borders.
Though some of the uncertainty surrounding trade policy had resolved as deals were made and the levies came into effect, Trump is not done with tariffs, unveiling more duties recently. Tariffs have cast a pall over the economy, and have combined with immigration raids to impede job growth.
Economists warned the 15th government shutdown since 1981, which will slow air travel, suspend scientific research, withhold pay from U.S. troops and lead to the furlough of 750,000 federal workers at a daily cost of $400 million, would further muddy the economic outlook.
"Tariffs are a time bomb for the manufacturing industry which so far has a very long fuse but eventually it will go off and may well bring the entire economy down with it," said Christopher Rupkey, chief economist at FWDBONDS.
The ISM said 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, which accounts for 10.1% of the economy. Economists polled by Reuters had forecast the PMI rising to 49.0.
Only five industries reported growth, including primary metals and textile mills. Among the 11 industries that contracted were wood products, machinery, electrical equipment, appliances and components, transportation equipment as well as computer and electronic products.
Some manufacturers of transportation equipment described business conditions as continuing to be "severely depressed."
They noted "companies are starting to pass on tariffs via surcharges, raising prices up to 20%.
Others saw no benefit from interest rate cuts and tax reductions from Trump's "One Big Beautiful Bill," which passed in July, because "all capital projects are on hold until there is some level of certainty and customers start to place orders for new equipment again."
Makers of electrical equipment, appliances and components said "customer orders are depressed for heavy machinery because tariffs are so impactful to high-end capital equipment."
Similar sentiments were echoed by their counterparts in the computer and electronic products sector who said "our industry is at a low point right now."
Source: Reuters