On Friday, November 1st, data released by ISM showed that the US October ISM Manufacturing PMI fell below expectations, hitting a 15-month low, marking the seventh consecutive month of contraction. Two hurricanes may have limited production in certain areas of the southeastern United States.

The US October ISM Manufacturing PMI index fell to 46.5, hitting a new low since July 2023, below the expected 47.6, with a September preliminary value of 47.2. 50 is the dividing line between expansion and contraction.

In March of this year, the US ISM Manufacturing Index unexpectedly performed significantly better than expected, breaking through the 50 mark to reach 50.3, ending 16 consecutive months of manufacturing contraction. However, looking at the data from the following months, it appears that the single-month expansion of the US manufacturing industry was short-lived. Overall, US manufacturing activity has been in contraction almost every month over the past two years, except for one month.

Regarding important sub-indices:

• Employment index at 44.4, compared to the September preliminary value of 43.9. Although the employment index has been below the 50 threshold for the fifth consecutive month, the pace of contraction slowed compared to September.
• Price paid index at 54.8, far exceeding the expected 49.3, returning to the expansion range, with a significant increase of 6.5 points compared to the 48.3 in September.
• The new order index is 47.1, still in the contraction range, but has improved compared to September, with the September previous value at 46.1.
• The production activity has sharply decreased, and the output sub-index has dropped to 46.2, a significant monthly decline of 3.6 points, marking the largest monthly decline since April 2021.

• The inventory sub-index is 42.6, further falling from 43.9 in September, to the lowest level since June 2012. The customer inventory sub-index dropped by 3.2 points in a single month, falling to 46.8, entering the contraction range. Inventory data indicates that manufacturers' inventories remain low.

The ISM Manufacturing PMI is one of the key economic data released in the US this week, highly anticipated by the market to assess whether it signals further soft landing of the US economy.

On the same day, the significant US non-farm payroll data showed a severe drag in the manufacturing industry, with a decrease of 0.046 million manufacturing jobs, including a loss of 0.044 million jobs in the transportation equipment manufacturing sector, mainly due to strike activities.

Earlier on the same day, the Markit Manufacturing PMI released showed the final value for October at 48.5, exceeding the expected 47.8 and the initial value of 47.8.

S&P Global Chief Business Economist Chris Williamson said:

In October, the US manufacturing sector has been in a slump for the fourth consecutive month, marking a disappointing start to the fourth quarter for the manufacturing industry. Despite a slowdown in the decline rate, order volumes continue to drop at a worrying pace, unsold inventories further increase, indicating that factories may have to further reduce production in the coming months unless there is a demand recovery.

However, this survey also provides some encouraging signs, indicating that the current soft situation may be temporary. Hurricanes are seen as the reason for supply disruptions, so these disruptions should ease in November. Manufacturers are more optimistic about the outlook than at any time since May, hoping that once the uncertainty from the US presidential election is resolved, demand will pick up.

It is worth noting that in recent months, orders for investment goods such as machinery and factory equipment have declined significantly. Employee numbers have also decreased for the third consecutive month, highlighting that companies are reluctant to expand amid increasing geopolitical uncertainties. Companies mentioned the tension brought by the US elections and escalating international conflicts. Hence, if the post-election political environment becomes more conducive to consumption and investment, there may be some room for growth in manufacturing.

After the release of the US October ISM Manufacturing PMI data, US bond yields saw a short-term rebound:

• The US two-year Treasury yield briefly rose above 4.14%, narrowing the overall intraday decline to about 4 basis points. After the release of the US non-farm payroll report at 20:30 Beijing time on Friday, the two-year US Treasury yield plunged and briefly hit a daily low of 4.0628%.
• The 10-year US Treasury yield briefly rose to 4.3%, then plummeted after the non-farm payroll data release, briefly hitting a daily low of 4.2205%.