(Bloomberg) -- US manufacturing activity shrank in August for a fifth month, reflecting faster rates of declines in orders and production.
The Institute for Supply Management’s manufacturing gauge edged up 0.4 point to 47.2, data out Tuesday showed. A reading below 50 indicates contraction.
The S&P 500 and Treasury yields remained lower after the report.
The group’s measure of production slid for a fifth month — deeper into contraction territory — to the lowest level since May 2020. The gauge of new orders, which showed bookings are shrinking, dropped to a 15-month low. Export orders also shrank at the fastest rate since the start of the year.
Declining orders and a persistent retreat in backlogs remain headwinds to production and illustrate a struggling manufacturing sector. While the ISM gauge of factory employment rose, it still showed a third month of contraction.
What Bloomberg Economics Says...
“To the extent that August’s uptick was supported by a jump in inventories and quicker supplier deliveries, the print indicates the potential for additional goods disinflation. An unintentional build up of inventories sets the stage for a production slowdown in the months ahead.”
— Stuart Paul. To read the full note, click here
Elevated borrowing costs and uncertainty surrounding the November presidential election are prompting some companies to hold off on capital expenditures and hiring. Still, Federal Reserve policymakers are expected to begin lowering interest rates later this month, which should offer some relief.
“There’s no doubt that the interest rate reductions that will probably come in September are going to help, but I’m not so sure they’re going to help in the short term,” Timothy Fiore, chair of the ISM’s Manufacturing Business Survey Committee, said on a call with reporters. “We’re not going to see things really start to change here until December, January.”
Select ISM Industry Comments
“A noticeable slowdown in business activity. Staffing and production rationalization has been triggered. Previous optimism about future growth has been dashed.” — Chemical Products
“Backlog has dropped in half as invoicing remains strong, but orders have slowed significantly. Hoping to see orders pick back up for the fourth quarter and into 2025 but expect third quarter to remain slow for incoming orders.” — Transportation Equipment
“Business outlook is good. Recovery from the electronics slowdown is strong for the second half of the year.” — Computer & Electronic Products
“Our order levels are on a slow, steady decline; it looks like the trend will continue through the end of the year. We are downsizing through attrition and not hiring backfills, but there have been no layoffs to date. The bright spot is a few customer programs have helped increase orders for parts, resulting in some production areas to be very busy while others have little work. Redeploying people where we can.” — Fabricated Metal Products
“Business is cooling down, and we don’t expect a rebound until after the election is over. As we build our 2025 budget, we continue to have deep concerns about the added environmental costs on energy.” — Paper Products
Costs also remain a headache. The ISM index of prices paid for materials rose to a three-month high of 54 in August from 52.9. After declining for most of 2023, the gauge of input costs has shown rising prices every month this year.
One favorable development in the latest ISM data is that manufacturing customers are better managing their inventory levels. A gauge of customer inventories has shown shrinking stockpiles every month since late last year.
--With assistance from Molly Smith and Mark Niquette.
(Adds comments from ISM chair, Bloomberg Economics)
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