Economy · August 2, 2022

The July manufacturing survey indicates a slowdown

The Institute for Supply Management’s manufacturing purchasing managers index fell to 52.8% in July, down 0.2 points from 53.0% in June (50 is neutral). July is the 26th consecutive reading above the neutral threshold, but the level is down sharply from the peak in March 2021 (see the top of the first chart). The survey results indicate that the manufacturing sector continues to expand, but demand has eased and price pressures have eased significantly. Additionally, while respondents remained optimistic about the future question, there were also some cautious comments.

The production index recorded a result of 53.5% in July, down by 1.4 points compared to June (see the central part of the first graph). The index has been above 50 for 26 months, but the semiannual average has declined for 16 consecutive months and the July average of 54.9% is the lowest since September 2020.

The employment index rose in July but remained slightly below the neutral 50 threshold for the third consecutive month. The reading of 49.9% suggests that employment remained broadly unchanged in July (see the middle part of the first chart). The report states: “According to comments from Business Survey Committee respondents, companies continue to hire at high rates, with little indication of layoffs, hiring freezes or staff reductions due to dropouts. Speakers reported higher resignation rates, reversing the positive trend in June. “

The Bureau of Labor Statistics’ employment situation report for July is scheduled for Friday, August 5, and expectations are for a gain of 250,000 non-farm jobs, including the addition of 15,000 in manufacturing.

The new orders index fell 1.2 points to 48.0 percent in July. This is the second consecutive reading below neutral and suggests that orders have contracted at a faster pace (see the bottom of the first chart). The new export orders index, a separate measure from new orders, rose to 52.6% from 50.7% in June. The new export orders index has been above 50 for 25 consecutive months.

The Backlog-of-Orders index stood at 51.3% versus 53.2% in June, a drop of 1.9 points (see the bottom of the first chart). This measure retreated from a record 70.6% in May 2021, but has been above 50 for 25 consecutive months. The index suggests that producer arrears continue to rise, but the pace continues to decelerate.

Customer inventories in July are still considered too low, with the index standing at 39.5%, up 4.3 points from June (index results below 50 indicate that customer inventories are too low). The index has been below 50 for 70 consecutive months. Insufficient stocks are a positive sign for future production.

The commodity price index fell 18.5 points to 60.0 in July and is the fourth consecutive monthly decline (see second chart). The index fell from 87.1% in March 2022 and suggests that price pressures have eased significantly.

The supplier delivery index recorded a result of 55.2% in July, down by 2.1 points compared to the June result. The index was at 78.8% in May 2021. The easing trend over the past 14 months suggests that deliveries are slowing at a much slower pace (see second chart).

The report noted that “price expansion declined sharply in July, but instability in global energy markets continues.” Additionally, “sentiment remained upbeat regarding demand, with six positive growth comments for each cautious comment.” But the report also stated, “Panel members now express concern over a softening of the economy as new order rates contracted for the second month amid developing anxiety over inventory overstocking. supplying”.

Overall, economic risks remain high due to the impact of inflation, the intensification of the Fed tightening cycle, the continuing fallout from the Russian invasion of Ukraine, and waves of new Covid-19 cases and lockdowns. China. The outlook remains very uncertain. Prudence is guaranteed.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 after more than 25 years of researching the economic and financial markets on Wall Street. Bob previously headed the Global Equity Strategy for Brown Brothers Harriman, where he developed an equity investment strategy that combines top-down macro analysis with bottom-up fundamentals.

Prior to BBH, Bob was Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist at Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a business degree from Fordham University and a business degree from Lehigh University.

Receive notifications on new articles by Robert Hughes and AIER.