Numbers: A key gauge of US factories fell to a 25-month low of 52.8% in July in a sign of creeping weakness in the US economy. The good news? Inflation pressures eased.
The manufacturing gauge that the Institute for Supply Management closely tracks is down from 53% in June, largely due to another drop in new orders.
While any number above 50% signifies growth, the latest reading was the weakest since June 2020. The index also fell three consecutive months for the first time since the start of the pandemic.
The bright side of the report was some easing of inflation. Businesses are still paying higher prices for supplies, but the inflation gauge has fallen to its lowest level in nearly two years.
However, it will take some time before the economy begins to benefit. Inflation jumped 9.1% last year, according to a popular indicator that tracks the cost of living.
Problems getting supplies also continued to fade. Lack of supplies played a large role in the worst spread of inflation in the United States in nearly 41 years.
The Big Picture: The US economy has slowed since the end of last year due to high inflation, high interest rates and the end of government stimulus. Gross domestic product, the economy’s official scorecard, has fallen for two consecutive quarters, meeting an outdated but unofficial definition of a recession.
While factories are still operating near the full mile, work has slowed and could get worse in the coming months as indicated by a drop in orders. New orders reflect future sales.
In some cases, customers have ordered too much and are waiting for the products they have to sell. They are also worried about stagnation.
“Our markets are still resilient; however, I think there is a slowdown coming,” said a senior executive at a company that makes metal parts for ISM. “We’re wary of going too far with requests.”
The new orders index fell 1.2 points to 48%. This is the lowest level since May 2020.
The production index fell 1.4 points to 53.5%.
The employment gauge rose 2.6 points to 49.9%. Fiori said most manufacturers are still trying to hire in a positive sign for the economy.
The price index, a measure of inflation, fell 18.5 points to 60%, its lowest in nearly two years. Most of the decline reflects lower energy prices.
I look ahead: “The broad slowdown in the economy is evident in the manufacturing sector as well,” said chief investment officer Jim Beard of Planet Moran Financial Advisors. “However, conditions are slightly expansionary, a welcome sign amid the rampant negativity in the wake of last week’s GDP report.”
market reaction: Dow Jones Industrial Average DJIA,
and the S&P 500 SPX,
It fell slightly in trading on Monday. The losses were extended after the ISM report.