U.S. Manufacturing PMI Contracts Again, But Signs Point to Potential Rebound Ahead

Manufacturing Contracts Again — But Is a Bottom Forming?

The October ISM Manufacturing PMI came in at 48.7, marking the eighth straight month of contraction. While the headline figure slipped just 0.4 points from September, the internals show a mixed bag — and traders are starting to ask whether this is a soft patch or a more entrenched downturn.

Are Orders Stabilizing Beneath the Surface?

New Orders ticked up slightly to 49.4, the second consecutive month in contraction but a modest improvement nonetheless. It’s not enough to call it a reversal, but it signals that demand erosion may be slowing. Export orders also edged higher (44.5 from 43.0), though they remain pressured by tariff friction and weak global demand. Bottom line: traders aren’t chasing the bounce — not yet — but the bleeding looks to be slowing.

Production Slips, But Inventory Draw May Offer Support

Production dropped back into contraction at 48.2, down 2.8 points, wiping out last month’s growth. But inventories tell a key story — the Inventories Index dropped to 45.8 while Customers’ Inventories stayed too low (43.9). That combo suggests producers are burning through stock rather than ramping up, which could set the stage for a production rebound if demand firms. Watch for restocking cues in coming weeks.

Employment Still Weak, but Slowing the Bleed

Employment remains a drag, with the index at 46.0. That’s up slightly from September, but still the ninth consecutive month of contraction. Comments skew heavily toward headcount reductions, with a 3.4-to-1 ratio of cuts versus hires. Traders should read this as manufacturers hedging against murky demand — not yet seeing enough signal to rebuild teams.

Prices Ease Off Highs, But Cost Pressures Persist

The Prices Index cooled to 58.0 from 61.9 — still elevated, but decelerating. Aluminum and stainless steel are leading the cost gains, with tariff effects continuing to distort input markets. While this offers some margin relief, price stickiness remains a concern, particularly for sectors exposed to imports or high commodity usage.

So What’s the Trade? Still Cautious, But Watch the Backlogs

Backlogs improved (47.9 from 46.2), suggesting the order pipeline isn’t collapsing. Supplier Deliveries also slowed further, with a reading of 54.2 — a sign that demand may be firming, or at least that suppliers are adjusting more cautiously. Combined with too-low customer inventories, the setup hints at potential upside risk if demand snaps back.

Short-Term Outlook: Cautiously Bullish on Rebound Potential

While the headline contraction continues, undercurrents in orders, inventory levels, and backlogs suggest the worst may be behind us — or close. It’s not a green light for risk-on positioning, but traders should watch for restocking activity and stabilization in orders. A bounce in Production or New Orders next month could shift sentiment fast.