July Manufacturing PMI Index Declines to 48 Percent with Supplier Deliveries and Employment Cited as Leading Contributing Factors

The latest ISM Report on Economic Activity in the US manufacturing sector indicated contraction for the fifth consecutive month. The July Manufacturing PMI registered 48 percent, a one-percentage-point decrease compared to the 49 percent recorded in June. Declines in the Supplier Deliveries and Employment indexes were cited as the biggest factors in the one-percentage-point drop in the Manufacturing PMI.

The New Orders Index showed contraction for the sixth month in a row despite a slight increase of 0.7 percentage point, reaching 47.1 percent relative to the June figure. The combination of the New Orders and Backlog of Orders indexes contracting at slower rates is considered an improvement in demand indicators, while a “too low” status for the Customers’ Inventories Index is usually considered positive for future production.

Regarding output, the Production Index increased month over month to move further into expansion territory; however, the Employment Index dropped further into contraction as panelists indicated that managing headcount is still the norm at their companies, as opposed to hiring. The ISM panel views the mixed indicators in output as a suggestion that companies are still being cautious in their hiring even with an increase in production.

Inputs—defined as supplier deliveries, inventories, prices, and imports—on net declined further into contraction territory. The Supplier Deliveries Index indicated faster deliveries as supply chain performance improved and sluggish demand continued. The Inventories Index moved marginally further into contraction territory as companies worked to reduce or adjust inventory to better align with demand. Prices continued to increase, but at a slower rate. The Imports Index remained in contraction at 47.6 percent—0.2 percentage point higher than June’s reading—but moved upward slightly. The New Export Orders Index reading of 46.1 percent is 0.2 percentage point lower than the June reading.

Seventy-nine percent of the manufacturing sector’s gross domestic product (GDP) contracted in July, up from 46 percent in June. Notably, 31 percent of manufacturing GDP is strongly contracting (registering a composite PMI of 45 percent or lower), up from 25 percent in June. Of the six largest manufacturing industries, none expanded in July, compared with four in June.

The seven manufacturing industries reporting growth in July—in order—are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Textile Mills; Miscellaneous Manufacturing; Furniture & Related Products; and Primary Metals. The 10 industries reporting contraction in July are: Printing & Related Support Activities; Paper Products; Chemical Products; Machinery; Wood Products; Fabricated Metal Products; Computer & Electronic Products; Transportation Equipment; Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products.

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