July manufacturing output remains in contraction mode, reports ISM

Manufacturing output remained in contraction mode in July, according to the new edition of the Manufacturing Report on Business, which was issued today by the Institute for Supply Management (ISM).

The report’s key metric, the PMI, eked out a 0.4% increase, to 46.4 (a reading of 50 or higher indicates growth), contracting, at a slower rate, for the ninth straight month. The past nine months of contraction were preceded by a stretch of 29 consecutive months of growth. ISM also said that the overall economy contracted, at a slower rate, in May, for the eighth consecutive month, which was preceded by 30 consecutive months of growth.

The July PMI is 2.1% below the 12-month average of 48.3, with August 2022 marking the high for that period, at 52.9, and June 2023, at 46.0, marking the lowest.

ISM reported that two manufacturing sectors— Petroleum & Coal Products; and Furniture & Related Products—grew in July. And 16 sectors contracted, including: Apparel, Leather & Allied Products; Plastics & Rubber Products; Paper Products; Textile Mills; Wood Products; Computer & Electronic Products; Chemical Products; Primary Metals; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Miscellaneous Manufacturing; Fabricated Metal Products; Transportation Equipment; Nonmetallic Mineral Products; and Machinery.

The report’s key metrics were mixed in July, including:

• New Orders, which are considered the engine that drives manufacturing, rose 1.7%, to 47.3, contracting, at a slower rate, for the 11^thconsecutive month;
• Production headed up 1.6%, to 48.3, contracting, at a slower rate, for the second straight month;
• Employment slipped 3.7%, to 44.4, contracting, at a faster rate, for the second straight month;
• Supplier Deliveries, at 46.1 (a reading above 50 indicates contraction), moved faster, at a slower rate, for the 10^thconsecutive month;
• Backlog of Orders, at 42.8, increased 4.1%, contracting, at a slower rate, for the 10^thconsecutive month;
• Inventories, at 46.1, were up 2.1% over June, contracting, at a slower rate, for the fifth consecutive month;
• Customer Inventories, at 48.7, were up 2.5% over June, heading “too low,” at a slower rate, for the second straight month; and
• Prices, at 42.6, were up 0.8%, decreasing, at a slower rate, for the third consecutive month

Comments submitted by the ISM member respondents again highlighted various themes related to the economy and market conditions.

“Current U.S. market conditions of inflationary and recessionary tactics [are] affecting overall business,” observed a Computer & Electronic Products respondent. “Customers are reducing or not placing orders as forecast, (putting) internal focus on reducing financial liabilities and overhead costs.”

And a Miscellaneous Manufacturing respondent said sales remain higher than forecast, with supplier capacity issues still remaining an issue.

“Demand remains weak but marginally better compared to June, production slowed due to lack of work, and suppliers continue to have capacity,” noted Tim Fiore, Chair of the ISM's Manufacturing Business Survey Committee, in the report. “There are signs of more employment reduction actions in the near term to better match production output. Ninety-two percent of manufacturing gross domestic product (GDP) contracted in July, up from 71 percent in June. However, the share of manufacturing GDP registering a composite PMI calculation at or below 45 percent — a good barometer of overall manufacturing weakness — was 25 percent in July, compared to 44 percent in June, a clear positive.”