Workers assemble the second-generation R1 vehicle at electric vehicle maker Rivian’s manufacturing plant in Normal, Illinois, USA, on June 21, 2024.
Joel Angel Juarez | Reuters
Another manufacturing indicator showed that U.S. manufacturing continued to slow in August, raising concerns about the economy’s future.
According to the Institute for Supply Management’s monthly survey of purchasing managers, only 47.2% reported an increase in activity during the month, below the breakeven point of 50% activity.
That was slightly higher than July’s 46.8% but below Dow Jones’ forecast of 47.9%.
“U.S. manufacturing activity is still contracting, but the pace of contraction has slowed compared to last month, as demand remains weak, output is declining and inputs remain accommodative,” said Timothy Fiore, chairman of the ISM Manufacturing Business Survey Committee.
“Demand remains weak as current federal monetary policy and election uncertainty make businesses reluctant to invest in capital and inventory,” he added.
While the index level suggests a contraction in manufacturing, a reading above 42.5 percent generally indicates expansion in the overall economy, Fiore noted.
The weaker-than-expected reading last month sent the market tumbling even harder, with the S&P 500 ultimately falling about 8.5%, before recovering most of its losses. Stocks began to slide following Tuesday’s release of the latest ISM. Dow Jones Industrial Average It fell about 500 points.
Another round of weak economic data has increased the odds that the Federal Reserve will cut interest rates by at least a quarter of a percentage point later this month. Following the ISM report, traders raised the odds of a more aggressive half-point cut to 39%, according to CME Group’s FedWatch indicator.
The survey also showed that the employment index rose to 46% and inventories surged to 50.3%. On inflation, the price index rose to 54%, potentially giving the Fed pause in determining the extent of interest rate cuts that are fully priced in.
The ISM results were supported by S&P’s separate PMI reading, which showed a decline to 47.9 in August from 49.6 in July.
The S&P employment index fell for the first time this year, but a gauge of input costs rose to a 16-month high, another sign that inflation is still present, albeit well down from its mid-2022 highs.
“The further decline in the PMI suggests that manufacturing is becoming a drag on the economy midway through the third quarter, and forward-looking indicators suggest that this drag may intensify in the coming months,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
