By Lucia Motikani
WASHINGTON (Reuters) – U.S. manufacturing activity slowed less than expected in July, and there were signs that supply constraints were easing, after a gauge of prices that factories pay for inputs fell to a two-year low, suggesting that Inflation may be likely. Peaked.
While Monday’s Institute for Supply Management (ISM) survey showed a gauge of contracted employment for the third month in a row, the ISM noted that “companies continue to hire at a solid pace, with few indications of layoffs, job freezes, hiring or cuts.” of individuals due to attrition.”
The ISM reading, better than expected, indicates that the economy is not in a recession, despite lower GDP in the first half of the year. However, companies are building up excess stocks after ordering too many goods due to shortage concerns, hurting new orders.
“There are signs that new order rates are weakening as committee members become increasingly concerned about excess stocks and continuing record lead times,” said Timothy Fury, chair of the survey committee.
The ISM’s index of national manufacturing activity fell to 52.8 last month, the lowest reading since June 2020, when the sector was emerging from the recession caused by the pandemic. The ISM index stood at 53.0 in June. A reading above 50 indicates an expansion in the manufacturing sector, which accounts for 11.9% of the US economy.
Economists polled by Reuters had expected the index to fall to 52.0. A reading above 48.7 over a period of time usually indicates an expansion of the economy in general.
High inflation has also been one of the main complaints from companies, although the general increase in input prices has begun to slow significantly. The chemical makers said inflation was “slowing business,” also citing “overstocking of raw materials due to past supply chain issues and slowing orders.”
Food manufacturers reported that “many customers appear to be withdrawing their orders in an effort to reduce stocks”. Textile mill operators said that “persistent delivery and staffing issues have affected their bottom line”.
The request cools down
The sub-index for new orders in the ISM survey fell to 48.0 last month, from a reading of 49.2 in June. This was the second consecutive monthly contraction. Combined with a steady decline in the order book, this indicates a further slowdown in the manufacturing sector in the coming months.
The cooling also reflects a shift in spending toward services from goods and the impact of higher interest rates, as the Federal Reserve grapples with stubbornly high inflation. Last week, the US central bank raised the interest rate by another three-quarters of a percentage point. Since March, that rate has increased by 225 basis points.
The economy contracted 1.3% in the first half of the year. Sharp fluctuations in inventories and trade deficits associated with global supply chains were the main cause, although overall momentum has waned.
Supply bottlenecks seem to be decreasing. The ISM measure of supplier delivery fell to 55.2 from 57.3 in June. A reading above 50% indicates a slowdown in deliveries to factories.
This improvement helped curb inflation at factories last month. The measure of prices paid by manufacturers fell to 60.0. This was the lowest level since August 2020 and down from 78.5 in June. But the road to low inflation will be long.
Although the gauge of factory employment in the survey rose to 49.9, it remained in contraction territory for the third consecutive month. Tech companies like Tesla have laid off employees, but many manufacturers, as of June, have expressed difficulty finding workers.
At the end of May, there were 11.3 million job vacancies across the economy, with nearly two vacancies for every unemployed worker.
The ISM survey found that “although the vast majority of survey panel members again indicate that their companies are hiring, they still struggle to meet business management plans.”
(Reporting by Lucia Moticani; Editing in Spanish by Ricardo Figueroa)