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The U.S. manufacturing sector showed obvious signs of weakness in various reports out on Monday, though at least one analyst said the bottom may be in sight. The Institute for Supply Management puts its index at 46.1 for June, which it said was its weakest reading since May 2020. File photo by Tannen Maury/EPA-EFE
July 3 (UPI) — U.S. manufacturing activity is on the decline as a push to clear out existing inventories collided with a downturn in new orders, various indices showed on Monday.
“The health of the U.S. manufacturing sector took a sharp turn for the worse in June, adding to concerns over the economy potentially slipping into recession in the second half of the year,” said Chris Williamson, the chief business economist at S&P Global Market Intelligence. “Leading the darkening picture was a severe drop in demand for goods, with new orders slumping at a rate among the steepest since the global financial crisis of 2009.”
A survey published last week by the Federal Reserve Bank of Dallas finds that inflation is still creating headwinds for manufacturers. Respondents said the cost of new materials, parts and shipping are on the rise. Spending from end users, meanwhile, remains on the decline.
S&P’s Purchasing Managers’ Index for the manufacturing sector was 46.3 in June, down from a reading of 48.4 in May. A reading below 50 suggests a contraction and June’s was the worst so far this year.
“Manufacturing performance has deteriorated in seven of the last eight months,” S&P’s report read.
Manufacturing is a key driver of activity in the U.S. economy, but so far the signs of a looming recession are scarce. The Bureau of Economic Analysis last week provided its latest estimate on GDP for the first quarter on Thursday, revising its previous forecast up from 1.3% to 2%, following growth of 2.6% during the fourth quarter.
Separately, the Institute for Supply Management puts its manufacturing index at 46.1 for June, which it said was its weakest reading since May 2020. Timothy Fiore, the chair of ISM’s manufacturing business survey committee, said only one industry in manufacturing, transportation equipment, reported growth last month.
“Demand remains weak, production is slowing due to lack of work, and suppliers have capacity,” he said.
Ed Moya, a senior market analyst with New York brokerage OANDA, said there was a silver lining in that new orders for manufactured goods increased, but the index there remained below 50 last month.
“The dollar tumbled following the ISM report that might suggest manufacturing activity is getting close to finding a bottom,” he said.
Stock markets were treading water on Monday amid light trading ahead of the July 4 holiday.
