ISM Manufacturing index ticks lower, but registers 26th consecutive month of expansion
- The July ISM Manufacturing index registered 52.8, beating expectations for a 52.0 print. The index fell 0.2 percentage points from the June's reading of 53.0.
- New orders fell by 1.2 percentage points to 48.0, while new export orders rose by 1.9 percentage points to 52.6.
- The backlog of orders sub-index came in at 51.3, falling 1.9 percentage points from June's 53.2 print.
- The production index fell 1.4 percentage points to 53.5 while the employment index rose 2.6 percentage points to 49.9.
- The supplier deliveries sub-index fell to 55.2 points from 57.3 in March indicating supplier delivery times expanded at their slowest rate since January 2020. The prices index fell 18.5 points to 60.0, reflecting a sharp slowdown in raw materials price growth.
- 11 of 18 manufacturing industries reported growth in January. Growth was led by Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Petroleum & Coal Products; Printing & Related Support Activities; Computer & Electronic Products; and Transportation Equipment.
Key Implications
- The ISM index is showing some resiliency despite slowing significantly from earlier in the year. Demand has started to ebb as new orders have fallen for two months in a row, while production growth has slowed to its slowest pace since June 2020.
- The good news is that with slowing demand comes less pressure on suppliers. Supplier delivery times rose at their slowest pace since before the pandemic. Conditions continue to reflect growing lead times, but the improvements are unmistakable. Moreover, despite continuing to show declines, the inventories subindex continues its steady improvement. Amid softening demand conditions, growth in raw materials prices slowed sharply, falling 18.5 percentage points, to its slowest pace since August 2020. Lastly, backlogs registered their slowest rate of expansion in two years.
- Conditions are unmistakably pointing to softer growth going forward. On the supply side, improvements are coming as demand wanes, something that was to be expected given the outsized shift by consumers to buying stuff rather than services. Looking forward, rate sensitive goods purchases are likely to face continuing headwinds are the Fed continues its fight against inflation. As such, further moderation in growth is likely.
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