–ISM: New Export Orders Post 1st Contraction Since June 2020
–ISM’s Fiore: ‘Prices Expansion Eased Dramatically’
–ISM’s Fiore: China Is Very Sluggish, Slowdown Is a Concern
–ISM’s Fiore: Chip Shortages Stabilized but To Remain Until Q1 of 2023
By Max Sato
(MaceNews) – U.S. manufacturing activity growth held up in August after slowing in the previous two months, thanks to higher new orders and employment, but it remains at the lowest rate in more than two years amid lingering supply constraints and slowing global growth, data from the Institute for Supply Management released Thursday showed.
The U.S. manufacturing sector index compiled by the ISM, which shows general direction, stood at 52.8 in August, unchanged from 52.8 in July. It had slumped to 53.0 in June from 56.1 in May, when it rose from 55.4 in April. It remains the lowest since June 2020, when the index at 52.4 was recovering from 43.5 the previous month and a recent low of 41.6 in April 2020 during the first wave of the pandemic. The all-time low is 29.4 hit in May 1980.
The main index stayed above the breakeven point of 50, indicating that the manufacturing economy expanded for the 27th consecutive month.
The new orders index rose 3.3 points to 51.3 in August after showing contraction in the previous two months (48.0 in July and 49.2 in June). The production index showed growth, at 50.4 percent, but it was down 3.1 points from 53.5 the previous month and hit the lowest level since May 2020 (34.0). After three straight months of contraction, the employment index expanded at 54.2 percent, rising 4.3 points from 49.9 in July.
“The U.S. manufacturing sector continues expanding at rates similar to the prior two months,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in statement. “New order rates returned to expansion levels, supplier deliveries remain at appropriate tension levels and prices softened again, reflecting movement toward supply/demand balance.”
The prices index increased for the 27th consecutive month, but it fell to a much slower pace of 52.5 compared to July’s 60.0.
Companies continued to hire at strong rates in August, with few indications of layoffs, hiring freezes or head-count reductions through attrition, Fiore said, adding that lower rates of quits were reported, a positive trend.
However, Fiore told reporters that the contraction in new export orders was “disappointing.” The new export orders index contracted at 49.4, down 3.2 points from July’s 52.6. The index last fell below 50 in June 2020, when it rose to 47.6 from 39.5 the previous month. Fiore wishes to see the index pick up to a level around 55.
“China is very sluggish. I’m concerned,” he said, referring to Wednesday’s release that the S&P China manufacturing PMI fell to 49.5 in August from 50.4 in July, indicating the sector has contracted in five of the eight months this year under Beijing’s strict zero-Covid policy.
“China’s not going to deviate from its shutdown policy, which means you have to have three months more in inventories onshore here.”
As for semiconductor shortages, Fiore said the situation is “stabilizing” and “not getting worse,” but added that “it’s going to remain with us at least until Q1 of next year.”
A transport equipment maker told the ISM survey that strong sales continued in August, adding, “The impact of the chip shortage is slowing.” By contrast, a machinery maker said it continues to struggle with electronic component shortages.
“Business conditions are good, and demand is strong,” a firm in the miscellaneous manufacturing category said. “Securing enough raw material supply to keep up is still a challenge.”
On the upside, Fiore noted in the statement that “prices expansion eased dramatically in August, which — when coupled with lead times easing — should bring buyers back into the market, improving new order levels.”
“Sentiment remained optimistic regarding demand, with five positive growth comments for every cautious comment,” he said. “Panelists continue to express unease about a softening economy, with 18 percent of comments noting concern about order book contraction. Twelve percent of panelists’ comments reflect growing worries about total supply chain inventory.”
The supplier deliveries index posted the fourth straight drop, down 0.1 point at 55.1 in August after July’s 55.2. The inventories index fell 4.2 points to 53.1 from 57.3.
Customers’ inventories index remained at a low level of 38.9 in August, down 0.6 point from 39.5 after rising 4.3 points in July from 35.2 in June. The appropriate level is 46 to 48.
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Contact this reporter: max@macenews.com