WASHINGTON (Reuters) – U.S. manufacturing maintained its July expansion in August as employment and new orders rebounded, while a further reduction in price pressures strengthened expectations that inflation is likely to peak.
The Institute for Supply Management (ISM) said on Thursday that its manufacturing PMI stood at 52.8 last month, unchanged from July. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the US economy.
Economists polled by Reuters had predicted the index would drop to 52.0. The industry is showing resilience despite a shift in spending back to services, as well as a drop in business confidence amid rapidly rising interest rates, which have heightened the risk of recession.
The new orders sub-index — a forward-looking measure in the survey — rebounded to 51.3 last month from a reading of 48.0 in July, ending two consecutive monthly declines. Order backlogs have increased, suggesting that factories will continue to run for a while.
The industry’s continued growth is further evidence that the economy is not in recession, despite the GDP contraction in the first half of the year. Sharp swings in inventories and the trade deficit linked to global supply chains were largely blamed for the decline in output, which was not borne out by the labor market.
Supply chains are gradually improving. The ISM’s measure of supplier deliveries dropped to 55.1 from 55.2 in July. A reading above 50% indicates slower deliveries to factories.
This caused inflation at the factory gate to decline even further. A measure of prices paid by manufacturers fell to 52.5, the lowest reading since June 2020 from 60.0 in July.
The moderation is largely being driven by a sharp pullback in commodity prices. Annual consumer and producer inflation slowed in July, endorsing cautious optimism that the worst of the price increases is likely behind us.
The ISM survey’s measure of factory employment jumped to a five-month high of 54.2 from 49.9 in July, boding well for the August employment report, due out on Friday. But manufacturing payrolls in the closely monitored government employment report continued to grow even as the ISM employment indicator contracted.
(By Lucia Mutikani)