Economic activity in the manufacturing sector has continued to show signs of contraction, according to the latest Manufacturing ISM® Report on Business®, released on August 1, 2024. The report highlights a significant decline in various key metrics, illustrating a challenging environment for manufacturers across the United States.
The Manufacturing Purchasing Managers’ Index (PMI®) registered at 46.8% in July, marking a decrease of 1.7 percentage points from June’s figure of 48.5%. This decline indicates that manufacturing activity has contracted for the fourth consecutive month and for the 20th time in the last 21 months. Despite these challenges, the overall economy has managed to remain in expansion for 51 months following a brief contraction in April 2020. A PMI® reading above 42.5% typically signals overall economic expansion.
The report, compiled by Timothy R. Fiore, CPSM, C.P.M., who chairs the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee, provides a detailed overview of the current manufacturing landscape. The New Orders Index, a critical measure of future manufacturing activity, also remained in contraction territory, registering at 47.4%, down from 49.3% in June. This decline suggests that demand for manufactured goods continues to weaken.
Production levels have similarly decreased, with the Production Index falling to 45.9%, a drop of 2.6 percentage points from the previous month. This contraction in production may be indicative of manufacturers grappling with reduced demand and operational challenges.
Another noteworthy aspect of the report is the Prices Index, which recorded a reading of 52.9%, an increase of 0.8 percentage points from June’s 52.1%. This uptick suggests that while manufacturing activity is slowing, prices for raw materials and goods are still on the rise, potentially squeezing margins for manufacturers.
The Backlog of Orders Index remained stagnant at 41.7%, reflecting ongoing challenges in fulfilling existing orders. The Employment Index also showed a concerning trend, registering at 43.4%, down 5.9 percentage points from June’s 49.3%. This decline in employment levels within the manufacturing sector raises concerns about job security and workforce stability.
Supplier deliveries have shown signs of slowing, with the Supplier Deliveries Index registering at 52.6%, an increase of 2.8 percentage points from June. It’s important to note that this index operates inversely; a reading above 50% indicates slower deliveries, which is often a sign of improved economic conditions and customer demand.
Raw materials inventories have also contracted, with the Inventories Index falling to 44.5%, down 0.9 percentage points from June. This decline may point to tighter supply chains and challenges in sourcing materials necessary for production.
In terms of international trade, the New Export Orders Index registered at 49%, slightly higher than June’s 48.8%. However, the Imports Index remains in contraction territory, recording a reading of 48.6%, indicating that the importation of goods into the U.S. is also facing challenges.
Fiore commented on the overall state of U.S. manufacturing, stating, “U.S. manufacturing activity entered deeper into contraction. Demand was weak again, output declined, and inputs stayed generally accommodative.” The report highlights a concerning trend of weakening demand, as evidenced by the New Orders Index dropping further into contraction, the New Export Orders Index continuing its decline, and the Backlog of Orders Index remaining in strong contraction.
As manufacturers navigate these challenging conditions, the report underscores the importance of monitoring economic indicators closely. The ongoing contraction in manufacturing activity may have broader implications for the economy as a whole, particularly as businesses adapt to shifting demand patterns and supply chain disruptions.
In summary, the July Manufacturing ISM® Report on Business® paints a picture of a manufacturing sector facing significant challenges. With key indices indicating contraction across multiple areas, stakeholders will need to remain vigilant in assessing the evolving economic landscape.
