Breaking News
Get 40% Off 0
Is NVDA a 🟢 buy or 🔴 sell? Unlock Now

US manufacturing slump deepens, factory gate price pressures subdued

Published Jul 03, 2023 10:33AM ET Updated Jul 03, 2023 09:25PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Julio Ventura welds a screed bottom for a commercial class road paver at the Calder Brothers factory in Taylors, South Carolina, U.S., in this handout picture taken July 18, 2021. Brandon Granger/Calder Brothers Corporation/Handout via REUTERS
 
BARC
+0.04%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
IBKR
-0.04%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. manufacturing slumped further in June, reaching levels last seen when the nation was reeling from the initial wave of the COVID-19 pandemic, but price pressures at the factory gate continued to deflate, a silver lining for the economy.

Shrinking activity left factories resorting to layoffs, the survey from the Institute for Supply Management (ISM) showed on Monday. ISM Manufacturing Business Survey Committee Chair Timothy Fiore described the practise as happening "to a greater extent than in prior months."

At face value, the ISM survey is consistent with an economy that is in recession. But the so-called hard data such as nonfarm payrolls, first-time applications for unemployment benefits and housing starts, suggest the economy continues to grind along.

Risks of a downturn have, however, increased as businesses and consumers deal with the 500 basis points worth of interest rate increases from the Federal Reserve since March 2022, when the U.S. central bank embarked on its fastest monetary policy tightening campaign in more than 40 years.

"This provides further reason to suspect that a recession is on the horizon," said Andrew Hunter, deputy chief U.S. economist at Capital Economics. "The ISM survey adds to the evidence that core goods prices will start falling again soon."

The ISM's manufacturing PMI dropped to 46.0 last month, the lowest reading since May 2020, from 46.9 in May. That marked the eighth straight month that the PMI stayed below the 50 threshold, which indicates contraction in manufacturing, the longest such stretch since the Great Recession.

Economists polled by Reuters had forecast the index edging up to 47. Manufacturing, which accounts for 11.1% of the economy, contracted at a 5.3% annualized rate in the first quarter, government data showed last week.

Some pockets of strength remain, however, amid solid demand for goods like transportation equipment.

The ISM survey showed that transportation equipment was the only one of the six biggest industries reporting growth last month. But even so, makers of transportation equipment expressed worries that second-quarter sales could decrease and boost inventory levels. They projected total end-of-year sales "to be about where we were last year."

Apart from the exorbitant borrowing costs, manufacturing is also being undermined by spending shifting to services from goods, which are typically bought on credit. Businesses are also carefully managing inventories in anticipation of weak demand.

Economists say the sector has yet to feel the pain from a tightening in credit following financial market turmoil earlier this year.

In addition to transportation equipment, printing, nonmetallic mineral products and primary metals grew in June. The 11 industry groups contracting included wood products, textile mills, electrical equipment, appliances and components, machinery and computer and electronic products.

Stocks on Wall Street ended slightly higher in a shortened session ahead of Tuesday's July 4 holiday. U.S. Treasury prices were mixed. The dollar was steady against a basket of currencies.

WEAK DEMAND

The ISM survey's forward-looking new orders sub-index climbed to a still-subdued 45.6 from 42.6 in May amid increased caution from businesses and consumers alike.

"Inventory investment has become a drag on activity as factories become increasingly wary of excess stockbuilding," said Jonathan Millar, a senior economist at Barclays (LON:BARC) in New York. "We continue to see ripening conditions for a downturn in hard data on factory production in the next few quarters."

Computer and electronic products manufacturers said "customers are less inclined to purchase far in advance." Manufacturers of food, beverage and tobacco products noted that "there is an elevated level of capital project review."

Machinery manufacturers reported that "orders and business are steady with a healthy backlog, but new prospective orders seem to be getting pushed back into 2024."

Weak demand is depressing prices for inputs. The survey's measure of prices paid by manufacturers fell to 41.8 from 44.2 in May as bottlenecks in the supply chain have eased considerably and higher borrowing costs dampen demand.

The delivery performance of suppliers to manufacturing organizations has been faster for nine straight months, leading to goods disinflation. But services inflation, now the main focus, remains sticky because of stronger wage growth from a tight labor market, as well as higher rents for housing.

The survey's gauge of factory employment fell to 48.1 from 51.4 in May. Though it is an unreliable predictor of manufacturing employment in the government's nonfarm payrolls count, it aligns with expectations of slower hiring by year end.

The government is expected to report on Friday that payrolls increased by 225,000 jobs in June after rising by 339,000 in May, according to a Reuters survey of economists.

While manufacturing is deteriorating, housing appears to be reviving, thanks to a dearth of homes for sale.

A separate report from the Commerce Department on Monday showed spending on residential construction rebounded 2.2% in May after dropping 0.9% in the prior month, with investment in single-family housing projects accelerating 1.7%.

That contributed to boosting overall construction spending by 0.9% in May after gaining 0.4% in April.

"The residential segment has benefited from renewed demand while the inventory of existing homes for sale has remained low because homeowners have little incentive to sell in a weaker real estate market while assuming larger mortgage payments," said José Torres, senior economist at Interactive Brokers (NASDAQ:IBKR) in Miami.

US manufacturing slump deepens, factory gate price pressures subdued
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
Mike Roddy
Mike Roddy Jul 05, 2023 1:30AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
As inventory builds, prices are reduced to sell goods, resulting in another tic down in inflationary pressure. after 18 months, we're still looking for a recession that never happens. Inflation coming down with no recession = soft landing.
Jul 03, 2023 4:04PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
What's up with all the excuses Reuters?Just do your usual and lay all the blame on the country.
Stephen Fa
Stephen Fa Jul 03, 2023 10:39AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Bidenomics.
EL LA
EL LA Jul 03, 2023 10:39AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The slower the president is able to walk, the slower the economy grows. Slow Joe.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email