In a significant shift, the US manufacturing sector has delved deeper into contraction in July compared to June, as reported by the Institute for Supply Management (ISM). This contraction is corroborated by data from S&P Global ($SPGI), highlighting that economic activity has now turned negative. The ISM's purchasing managers' index (PMI) fell to 46.8 in July, down from 48.5 in June, which was notably below the Bloomberg-compiled consensus expectation of 48.8.
A PMI reading below 50 signals that the manufacturing sector is contracting. The average PMI over the past year stands at 48.1. Timothy Fiore, the chair of the ISM's manufacturing business survey committee, commented, "Demand was weak again, output declined, and inputs stayed generally accommodative." This sentiment underscores the challenges manufacturers are facing amidst a shifting economic landscape.
The index measuring new orders observed a decline, falling to 47.4 in July from 49.3 in the previous month. Similarly, production decreased to 45.9 from 48.5, indicating a reduction in manufacturing activity. The employment index also suffered, dropping to 43.4 from 49.3 month-over-month. On the pricing front, the prices paid gauge inched up to 52.9 from 52.1, indicating that raw material costs are on the rise according to the report.
In total, eleven industries reported contraction last month, while five sectors demonstrated growth. Fiore noted, "Companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and other conditions," highlighting the cautious approach manufacturers are taking in response to the economic environment.
Recently, the Federal Reserve's monetary policy setting committee voted to maintain interest rates unchanged at a range of 5.25% to 5.50%, marking the eighth consecutive pause in rate changes. On a separate note, S&P Global reported that its manufacturing PMI slid down to 49.6 in July from 51.6 in June, which aligns with Bloomberg's consensus expectations.
This decrease in new orders marked the first decline in three months, with new business decreasing at the most rapid pace seen in 2024, according to S&P's report. Chris Williamson, the chief business economist at S&P Global Market Intelligence, remarked, "The manufacturing recovery moved into reverse in July; however, the gloomier growth outlook was paired with a notable easing of inflation within the goods-producing sector." Although many firms anticipate this downturn to be temporary, potentially linked to political uncertainties surrounding the US presidential election, expectations for output over the next year remain notably subdued relative to historical trends, indicating a cautious outlook among manufacturers moving forward.
Price: 487.08, Change: +2.35, Percent Change: +0.48 $SPGI.