The manufacturing sector contracted for the fifth month in a row with both production and new orders being a significant drag, according to the Institute for Supply Management’s purchasing managers’ index.
Even though the Federal Reserve has signaled a policy pivot to lower interest rates, the sector remains under pressure from elevated borrowing costs, which won’t go away soon.
We expect a lag between loosening monetary policy and the rebound of the sector, which might last several months or more. With rate uncertainties remaining, including the pace and the extent of the Fed’s rate cuts, both demand and supply within the sector continue to slow.
Separately, the ISM manufacturing index, which was released on Monday, ticked up only slightly to 47.2 from 46.8, remaining below the 50 threshold that indicates the neutral level. A reading below 50 indicates contraction on a monthly basis.
Production and new orders were in negative territory as well, falling to 44.8 and 44.6, respectively, on the month. At the same time, prices paid by businesses rose at a slightly faster clip in August, increasing to 54 from 52.9 earlier.
With demand slowing down drastically, businesses have been forced to cut down on production to keep prices and their profit margins intact.
Read more of RSM’s insights on manufacturing, the economy and the middle market.
A result of the slowdown was another month of employment declines, though at a slower pace at 46 compared to 43.4 in the prior month.
The continuing decline in job gains will show up in the coming jobs report on Friday. But the change in manufacturing jobs has been quite small compared to the overall change in job gains. We remain confident in our forecast of a strong rebound in job gains for August.
The contraction in manufacturing activities did not apply to every respondent of the ISM survey. Twelve subsectors reported contraction, while five reported growth, including primary metals; petroleum and coal products; furniture and related products; food, beverage and tobacco products; and computer and electronic products.
