–ISM: Labor Shortages, Supply Constraints Continue Weighing on Sector
–ISM’s Fiore: No Change to View US Recession Not Looming in Manufacturing
–ISM’s Fiore: Plunge in Prices Index Due to Weaker China Demand, Lower Energy Costs
By Max Sato
The U.S. manufacturing sector index compiled by the ISM, which shows general direction, fell to 52.8 in July after plunging to 53.0 in June from 56.1 in May, when it picked up from 55.4 in April. It remains the lowest since May 2020, when the index at 43.5 was recovering from a recent low 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 overall economy expanded for the 26th consecutive month.
The prices sub-index fell sharply in July, reflecting weaker demand in China, particularly for copper, and softer petrochemical product prices. Lower crude oil prices also affect shipping and electricity costs.
“There are signs of new order rates softening — cited in 16 percent of general comments, compared to 17 percent in June — as panelists are increasingly concerned about excessive inventories and continuing record-high lead times (the time between order placement and receipt),” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in statement.”
“Panelists are now expressing concern about a softening in the economy, as new order rates contracted for the second month amid developing anxiety about excess inventory in the supply chain,” Fiore said.
But he told reporters that there is no change to his assessment made last month that there is no sign of recession in the manufacturing sector as firms are still hiring.
The ISM data showed that the new orders index fell 1.2 points to 48.0 in July after slumping 5.9 points to 49.2 in June, showing two months of contraction. Every time the US economy has entered recession, this index fell below 40, “but we are nowhere near it,” Fiore said.
Also on the soft side, customers’ inventories index remains at a low level but it rose 4.3 points in July to 39.5 from 35.2 in June. The appropriate level is 46 to 48, Fiore said.
The prices index plunged 18.5 points to 60.0 in July after falling 3.7 points to 78.5 in June. It reached the lowest level since 59.5 in August 2020. Fiore said he hopes to see the index at 58 to 60 but noted that the sector still faces instability in global energy markets.
The production index marked the first drop in three months down 1.4 points at 53.5 in July, the lowest since 34.0 in May 2020, after rising 0.7 point to 54.9 in June. A level below 50 is “disappointing,” Fiore said.
The backlog orders index fell 1.9 points to 51.3 after falling 5.5 points to 53.2 in June.
The employment index showed contraction (below 50) for the third straight month but rose for the first time in four months, up 2.6 points at 49.9, after falling 2.3 points to 47.3 in June April.
“According to Business Survey Committee respondents’ comments, companies continue to hire at strong rates, with few indications of layoffs, hiring freezes or headcount reduction through attrition,” Fiore said. “Panelists reported higher rates of quits, reversing June’s positive trend.”
The supplier deliveries index also posted the third consecutive drop, falling 2.1 points to 55.2 in July after falling 8.4 points to 57.3 in June.