U.S. Manufacturing Shows Improvement but Hiring Lags

U.S. manufacturing activity continues to rebound from the sharp downturn last spring, when factories closed to contain the spread of the coronavirus.

A pair of new manufacturing surveys released Thursday shows firms saw solid demand domestically and from abroad in September, leading to backlogs of new orders.

The Institute for Supply Management said its purchasing-managers index of manufacturing activity registered 55.4 in September, indicating the fourth straight month of expansion. A reading above 50 indicates that activity is increasing, while a reading below points to a decline in activity.

Despite the gains, manufacturing activity in August remained 7.3% below its February level, according to Federal Reserve data released last month.

About 12.1 million people worked in American manufacturing in August, roughly 700,000 fewer than before the pandemic, according to the Labor Department.

Meantime, an ISM subindex of employment, at 49.6, indicated that factories continued to shrink their workforce in September, though at a slower pace than in previous months.

“The employment side, which generally lags everything, has been doing better since it troughed out several months ago,” said Timothy Fiore, who runs the ISM manufacturing surveys. “Overall everything kind of looks good.”

Data firm IHS Markit, in a separate survey also released Thursday, said its purchasing-managers index of manufacturing activity rose slightly to 53.2 in September from 53.1 in August. That survey showed a slight uptick in employment in September.

“Companies reported a marked upturn in demand for plant and machinery, which suggests firms are increasing their investment spending again after expansion plans were put on hold during the spring,” said Chris Williamson, chief business economist at IHS Markit. “Similarly, fuller order books helped drive further job creation as firms continued to expand capacity.”

The manufacturing results come amid indications that the economic recovery is losing momentum. Household spending rose 1% in August from the previous month, a slower pace than earlier in the summer, the Commerce Department reported Thursday.

Meantime, personal income fell 2.7% in August because of the expiration of expanded unemployment benefits.

Also, the Labor Department said first-time claims for unemployment remained high, at 837,000 for the week ended Sept. 26. Several major employers, including airlines, theme parks and restaurants have announced layoffs in the past few days.

The Labor Department is set to release its September jobs report on Friday. Economists surveyed by The Wall Street Journal expect it to show employers added 800,000 new jobs last month, pushing the unemployment rate down to 8.2%, from 8.4% in August. That would represent a historically strong pace of growth, albeit slower than August, when 1.4 million workers gained jobs.

Mr. Fiore pointed to several headwinds that could slow the pace of the manufacturing recovery. First, a rise in coronavirus infections this fall could prompt more businesses to shut down and workers to stay home. Second, schools’ move online could keep many parents home from work. Finally, uncertainty around the presidential election could prompt firms to postpone investments.

The picture is similar in Europe and Asia, where manufacturers continue to cut jobs even though they have recovered much of the ground lost during the coronavirus-induced lockdowns earlier this year.

Meanwhile, unemployment in the eurozone edged up in August, despite heavy government subsidies aimed at saving jobs and businesses.

IHS Markit said its manufacturing purchasing-managers index for the eurozone rose to 53.7 in September from 51.7 in August.

Much of that growth in activity was concentrated in Germany, where businesses reported a strong pickup in export sales. Germany has stood out among rich countries for the strength of its recovery, benefiting from resurgent Chinese demand for its machine tools and other investment goods.

The revival in Germany’s exports had a positive knock-on effect in economies that are closely linked with Europe’s manufacturing powerhouse, including Poland and the Czech Republic.

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