ISM's index of prices paid for materials by U.S. manufacturers fell in July by the most since 2010.
U.S. manufacturers are growing more optimistic about the outlook after energy and metals prices plunged in July, and data suggest the sector should be able to sustain moderate growth levels through year-end, Institute for Supply Management chair Timothy Fiore told MNI Monday.
The July measure of prices paid for materials used in the production process plunged 18.5pps to the lowest level since August 2020, marking the largest drop since 2010 as crude oil and metals prices fell. Almost 22% of those surveyed reported paying lower prices in July, up from 8% the previous month, while the number of firms reporting higher prices dropped 23pps to 42%.
Sentiment improved rapidly in July on the moderating price growth and improvements in supply chains with 6 to 1 positive comments in the report, up from 3 to 1 in June. "The price areas are really where it fell off," Fiore said, still maintaining a cautious outlook on prices for the next few months. "Prices are not as much of an issue today but I am concerned about demand and so I'm looking closer at it and so are respondents."
The ISM manufacturing composite gauge inched down to 52.8 in July from 53.0 the prior month. While that is the lowest reading since June 2020, Fiore maintained his view that U.S. manufacturing will see steady growth through the end of the year.
The new orders index retreated to 48.0, modestly below 50 for a second straight month, as firms are paring back their order flows to right-size their supply chains and in some sectors in response to softer demand, Fiore said.
"New orders are slightly contracting, but I really don't have a lot of concern. It's easily attributed to the fact that people have been over-ordering," Fiore said.
"Our panelists do not want to end up with excessive manufacturing inventory when things start to slow," he said. "There is a clear effort underway by the supply community to not receive excess inventory early and get stuck with it."
Suppliers are delivering faster, and measures directly relevant to the supply side corroborate the notion that bottlenecks are slowly easing, he said. The supplier deliveries measure cooled to 55.2, still high but the lowest reading since before the pandemic began. The order backlogs index declined to 51.3.
SEVEN IN EIGHT FIRMS HIRING
The July report also showed employment rebounding by 2.6pps to 49.9, but remained in contractionary territory for a third straight month.
Fiore said the labor market in the manufacturing sector remains tight with plenty of firms unable to hire as many as they would like. Even as many companies report they are prepared to lay off workers if needed, Fiore dismissed it as a sign of a broader downturn in the economy and the labor market.
"Out of every eight companies that responded to the employment survey, seven of them are continuing to hire," he said. "I'm not saying that we're not going to get there [to a recession] but what I'm saying is in the month of July, the manufacturing community still is not there."