LIVE MARKETS-Schrodinger's PMI: Is US factory activity expanding or contracting? Yes

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SCHRODINGER'S PMI: IS U.S. FACTORY ACTIVITY EXPANDING OR CONTRACTING? YES

As investors and policymakers continue to grapple about in the darkness with very little official data to guide a path forward, they depend on independent sources to shed light on the state of the U.S. economy.

On Monday, market participants were treated to a double dose of factory data. So are goods makers in expansion or contraction? Both, as it turns out.

The Institute for Supply Management's (ISM) purchasing managers' index (PMI) USPMI=ECI showed activity at U.S. factories contracted in October at a slightly accelerated pace than in the previous month.

The index shed 0.4 point to land at 48.7, contradicting analysts who expected a 0.4 point move in the opposite direction.

ISM's manufacturing PMI now sits 1.3 points below the magic PMI level of 50, the dividing line between monthly contraction and expansion.

Wandering into the weeds, new orders and employment improved but remained in contraction, and production dipped below 50. Prices paid - an inflation predictor - shed 1.9 points but remained elevated at 58.0.

"Firms are concentrated on managing head count and reducing overhead costs, with a noticeable shift towards the use of layoffs in addition to attrition," writes Matthew Martin, senior U.S. economist at Oxford Economics. "Until the full effect of tariffs filters through supply chains and trade policy uncertainty wanes, the sector is likely to be mired in recession. However, we look for lower interest rates and a fiscal boost from the One Big Beautiful Bill to provide a boost to the sector next year."

Commentary from ISM's survey participants is riddled with worrisome phrases like "customers are canceling and reducing orders," "decrease in domestic demand," "sales continue to underperform" and "tariffs continue to be a large impact to our business."

S&P Global also leaped into the mix with its final take on October manufacturing PMI USMPMF=ECI, which printed at 52.5, a slight improvement over its initial "flash" reading of 52.2; that's half a point above September's final take, and steps further into expansion territory.

But it's not all lollipops and unicorns, according to Chris Williamson, S&P Global's chief business economist.

"U.S. manufacturers reported a solid start to the fourth quarter with production rising at an increased rate in response to an encouragingly robust jump in new orders," Williamson writes. "However, lift the hood and the picture is not so healthy."

"Most worrying is the unprecedented rise in unsold stock reported in October, widely linked to weaker than anticipated sales," he adds. "Companies have also become less optimistic about the year ahead, with sentiment back down close to the gloomy levels seen around the April tariff announcements."

The S&P Global and ISM indexes differ from each other in the weight they apply to the various components (new orders, employment, etc).

Here's how closely they agree (or not). The dueling PMIs next meet on Wednesday, when they look at the services side of the coin.

(Stephen Culp)

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