US Manufacturing PMI Contracts Again, But Signs Point to Potential Rebound Ahead

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 remained 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 the 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 quickly.