The Institute for Supply Management (ISM) reported that its manufacturing PMI fell to 46.8 in July, marking an eight-month low. This decline was attributed to a slump in new orders. However, despite the downturn, the PMI remains above the 42.5 level, which historically indicates an expanding overall economy. While higher interest rates have impacted the manufacturing sector, the situation might not be as dire as sentiment surveys suggest. Hard data from the government and Federal Reserve indicates a rebound in factory production and spending on goods during the second quarter. The Federal Reserve kept interest rates unchanged this week but hinted at potential cuts as early as September.
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The ISM survey’s forward-looking new orders sub-index dropped to 47.4 in July, reflecting a decrease in demand. Manufacturers also faced higher input prices, likely driven by soaring freight rates. While the survey indicated continued job losses in the sector, the overall picture suggests a more nuanced situation than the headline PMI might indicate. The rebound in production and spending on goods, coupled with the Fed’s stance on interest rates, points towards potential stabilization in the manufacturing sector.