The ISM Manufacturing Index expanded in July
The ISM Manufacturing Index expanded moderately in July, coming in at 52.8, modestly above expectations for 52.2. A reading above 50 is indicative of growth in the manufacturing sector.
Against a backdrop of bubbling questions about whether or not the economy is slipping, or has already slipped, into recession, an indication that the cyclically sensitive manufacturing sector is still expanding – even moderately – is a welcome sign.
There are clear signs of a growing sluggishness in factory activity, but activity certainly hasn’t fallen off a cliff. Even at this slower pace, the nation’s industrial sector is still far from typical recessionary territory.
One notable warning light is flashing in the underlying components of the survey. New orders contracted for the second consecutive month, suggesting a greater slowdown could emerge in the coming months. The deceleration in new order activity comes as order backlogs are also slimming.
Manufacturers’ inventories are growing at a somewhat faster pace, but customer inventories remain relatively skinny. Across retail channels, however, there’s a sense that inventories remain elevated, leading to heavy discounts to move stock. Further back in the supply chain, a buildup of raw materials could signal that supply chain bottlenecks may be clearing but that a period of adjustment may still be needed before conditions normalize.
If there’s a hopeful sign in the July data, it came in the form of an easing in price pressures, with that sub-index falling from 78.5 to 60.0. Inflation has been running too high for too long, and consumers and policymakers alike are looking for any indication that price pressures may be breaking. We’re not out of the proverbial inflation woods, but there are at least signs of a clearing ahead.
Bottom line: The broad slowdown in the economy is also apparent in the manufacturing sector. Still, conditions are modestly expansionary — a welcome sign amid the pervasive negativity on the heels of last week’s GDP report.
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