Economic activity in the U.S. manufacturing sector contracted for the seventh consecutive month in October, marking the 23rd decline in the past 24 months.

What Happened: According to the latest Manufacturing ISM Report On Business released today, the manufacturing purchasing managers’ index (PMI) dipped to 46.5%.

That’s down from September’s 47.2%, making it the lowest reading of the year.

Timothy R. Fiore, chair of the ISM Manufacturing Business Survey Committee, said ongoing weak demand and production drops are major factors impacting the sector.

"U.S. manufacturing activity contracted again in October, and at a faster rate compared to last month. Demand continues to be weak, output declined, and inputs stayed accommodative," he added.

Production in October fell sharply, with the production index registering 46.2%, a drop from 49.8% in September. Employment, although still in contraction territory, showed slight improvement, reaching 44.4%.

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Why It Matters: The report further revealed troubling signals in the supply chain, with the Backlog of Orders Index slipping to 42.3% and inventories continuing their descent at 42.6%. Demand indicators remained sluggish, with the New Orders Index at 47.1%, and exports stuck in contraction territory at 45.5%.

Despite these downward trends, Fiore noted signs of expansion in certain sectors. Food, beverage and tobacco products, as well as computer and electronic products, showed resilience, with a handful of industries including Apparel and Petroleum Products reporting growth.

However, industries such as textile mills, transportation equipment, and Chemical Products continued to struggle, contributing to an overall bleak outlook as manufacturing GDP contracted across 63% of the sector.

The report cited inflation concerns and uncertainties in federal monetary policy as key reasons for companies' caution in capital investments.

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