U.S. manufacturing activity showed a slight uptick in August, rising from an eight-month low in July, according to the latest report from the Institute for Supply Management (ISM). The manufacturing Purchasing Managers’ Index (PMI) increased to 47.2 in August, up from 46.8 in July, marking the lowest reading since November. However, this figure remains below the market consensus prediction of 47.5.
MIDF Research (MIDF) in a note today (Sept 4) said that despite the improvement, the manufacturing sector continued to face challenges, experiencing a decline for the fifth consecutive month. A slower drop in employment was noted, alongside a shift toward increasing inventories.
However, this was overshadowed by a significant decline in new orders and production, contributing to improved delivery times and a slower decrease in order backlogs.
On the cost front, manufacturers reported a faster rise in raw material prices, contributing to heightened input inflation. Firms have been cautious about investing in inventory and capital due to weak demand, concerns related to restrictive monetary policies, and the upcoming election.
Despite the challenges in manufacturing, the ISM report indicated an overall improvement in the U.S. economy, which has been expanding for 52 consecutive months, as evidenced by the PMI remaining above the critical threshold of 42.5 since recovering from the contraction in April 2020.
In contrast to the ISM findings, the S&P Global Manufacturing PMI signaled a sharper contraction, falling to 47.9 in August. Both reports, with readings below 50, indicate weaker demand and slowing production.
MIDF said they opined the weak activities will result in the Fed shifting towards policy easing at the upcoming policy meetings. However, the Fed may adopt a less aggressive interest rate reduction to avoid encouraging a renewed rise in the US inflation.
