The U.S. manufacturing sector continued to contract in July for the ninth consecutive month, albeit at a slower pace than before, according to the Institute for Supply Management (ISM). The index of manufacturing activity rose slightly from 46.0 in June to 46.4 in July. While this suggests a closer alignment between output and weak demand, it also indicates a deteriorating outlook for the second half of the year.
Weaker Demand Impacts Output
Economists had expected a slightly higher reading of 46.8, according to a poll conducted by The Wall Street Journal. Timothy Fiore, chairman of the ISM Manufacturing Business Survey Committee, noted that although demand remains weak, it has improved marginally compared to June. However, production slowed due to a lack of work, and suppliers continue to face capacity constraints.
Mixed Improvements Across Components
While most components of the index showed some improvement compared to June, they remained below the 50-point contraction level. The index for new orders increased by 1.7 points, indicating a slight uptick in demand. Similarly, production saw slight improvement. Supplier deliveries improved at a more modest pace, while inventories and order backlogs witnessed more significant improvements.
Employment Index Contracts Further
In contrast, the employment index dropped by 3.7 points to 44.4, slipping further into contraction territory. Fiore attributed this decline to mixed sentiment regarding when significant growth would return. As a result, companies reduced production and managed headcounts down to a greater extent than in previous months.