The US Purchasing Managers Index (PMI) for July from the Institute for Supply Management (ISM) came at a level of 46.4, up a modest 0.4 percentage point versus the 46.0 recorded in June, but also below the key 50 mark that separates US manufacturing expansion from contraction for the ninth straight month.
Before that the US saw a 28-month period of manufacturing growth after May 2020, not long after the start of the pandemic earlier that year.
The PMI tracks closely but not exactly with the overall US economy. The July PMI indicates a eighth month of overall economic contraction after a 30-month period of expansion.
What’s more, the New Orders Index remained in contraction territory at 47.3, though 1.7 percentage points higher than the figure of 45.6 recorded in June, in bad news for future US manufacturing activity.
It was mostly negative news in other related measures as well. For example, while again the Production Index of 48.3 was a 1.6-percentage point increase compared to June, it still means a decrease in manufactuing output in the month.
The Prices Index registered 42.6, up a a slight 0.8 percentage point compared to the June figure of 41.8. That means companies saw a significant decrease in the cost of components, materials and other inputs. This index (below 50 = falling prices), was just a few months ago above 80, as inflation took off.
In more bad economic news, the Backlog of Orders Index registered 42.8, 4.1 percentage points higher than the June reading of 38.7. Still, it indicates order books are again shrinking dramatically, with the level well below the 50 mark.
The Supplier Deliveries Index figure of 46.1 is a mere 0.4 percentage point higher than what was seen in June. In the last eight months, the Supplier Deliveries Index has recorded its eight lowest readings since March 2009 (43.2). Supplier Deliveries is the only ISM index that is inversed; a reading of above 50 indicates slower deliveries, which is typical as those economy improves and customer demand increases.
The Inventories Index increased by 2.1 percentage points to 46.1, indicating inventory levels at companies are decreasing.
So overall, July showed some improvements from June in almost all metrics, but most came in below the 50 level, meaning overall things continue to get worse.
“The US manufacturing sector shrank again, but the uptick in the PMI indicates a marginally slower rate of contraction. The July composite index reading reflects companies continuing to manage outputs down as order softness continues," commented Timothy Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee.
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As always, the ISM report provides a graphic of the full PMI scores for the last 12 months, which as can be seen has the measure trending down since June of 2022, and it is now averaging just 48.8 over the past year, below the key 50 level.
US PMI Last 12 Months
Source: ISM
Just two of the 18 industry US sectors tracked by the PMI reported growth in July: petroleum & coal products and furniture
As always, there were some interesting comments from PMI survey respondents.
A respondent in the food/beverage sector commented that “We are still in our slow season but will soon ramp up production to prepare for our busy season in late fall. Inventories aren’t changed much now but will be increasing soon. The reports on cooling inflation and consumer confidence are driving expectations of a very strong back half (of the year).”
But another from the computer & electronics sector stated that “Current US market conditions of inflationary and recessionary tactics affecting overall business. Customers are reducing or not placing orders as forecast, (putting) internal focus on reducing financial liabilities and overhead costs.”
Finally, a manager in the metals sector noted that “Stable demand for the next four to six months, but longer-term uncertainty. While customer growth is projected, we cannot point to fundamentals that sustain it."
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