Rising inventories and shrinking orders saw more US factories dialing back production as manufacturing activities remained cool in July.
Data released Monday by the Institute of Supply Management gauge for factory activity came down to 52.8 from 53 in June. This level was the lowest since June 2020. Readings over 50 mean manufacturing expansion compared to Bloomberg economists’ latest median projection of 52.
The economist group production measure also showed the lowest in two years. The new order gauge remained in declining territory for two consecutive months. The figures show softer demand for goods as the economy struggles for momentum.
Timothy Fiore, chairman of ISM’s Manufacturing Business Survey Committee, said panelists are expressing concern over the contraction of new orders. The softening in the economy has caused anxiety over excess inventory piling up in the supply chain.
The ISM factory inventory index increased to a high of 57.3, the maximum since 1984, suggesting a stockpile at the manufacturer’s end. Some of the build-ups were unintentional as many manufacturers added inventory to overcome supply chain disruptions.
S&P Global data showed that build-up to the finished goods has increased for the first time since October 2020. The overall factory purchasing manager index for July showed a gauge of 52.2, the lowest in two years.
Consumption Shift
After a multi-decade peak in March last year, the ISM overall index is now down by nearly 11 points. Producers were rushing to meet demand during the pandemic lockdown, and consumption patterns showed a shift in spending from goods to services.
Led by apparel, petroleum, coal, and mineral products, eleven manufacturing industries reported growth last month. Seven industries showed a manufacturing decline led by wood products, paper, and furniture.
The manufacturing data revealed by S&P Global and ISM are consistent with the global slowdown. Manufacturing output in Asia weekend while actives on European factories slumped in July.
The Purchasing manager’s indexes for the four largest Euro members showed contraction as shrinking confirmed for the entire region after initial July 2022 estimates. China, Taiwan, and South Korea reported the biggest hit in Asia.
The measure of prices paid for production materials also plunged in July by 18.5 points. This was the lowest in two years after seeing elevated demands in the last one and a half years caused by demand and supply imbalance.
This also marked the highest drop since 2010 and showed in price decline of metals and crude oils. The report revealed around 22% of the respondents said they paid lower prices in July, which was up by 8.3% compared to June.
As seen in the purchasing manager’s data, delivery time from suppliers increased. However, the pace was the slowest since the beginning of the pandemic. Combined with declining orders, it allowed firms to make on the backlog of unfulfilled orders. As per ISM data, the measure of backlogs also fell to the lowest since June 2020.
