Workers assemble second-generation R1 vehicles at electric vehicle maker Rivian's manufacturing facility in Normal, Illinois, U.S., June 21, 2024.
Joel Angel Juarez | Reuters
U.S. factories remained in slowdown mode in August, raising concerns about where the economy is headed, according to separate manufacturing indicators.
The Institute for Supply Management's monthly survey of purchasing managers showed that only 47.2% of them reported expansion during the month, which is below the 50% breakeven point for activity.
Although this rate was slightly higher than the 46.8% recorded in July, it was lower than the Dow Jones forecast, which was indicating a rate of 47.9%.
“While U.S. manufacturing activity remains in contraction territory, it contracted more slowly than last month. Demand remains weak, output declined, and inputs remained accommodative,” said Timothy Fiore, chair of the ISM’s manufacturing business survey committee.
“Demand remains weak, with businesses showing an unwillingness to invest in capital and inventory due to current federal monetary policy and electoral uncertainty,” he added.
While the index level indicates a contraction in the manufacturing sector, Fiore noted that any reading above 42.5% generally indicates expansion in the broader economy.
It was last month’s weaker-than-expected reading that sent markets into a deeper dive, eventually costing the S&P 500 about 8.5% before recouping most of its losses. Stocks extended their declines after the Institute for Supply Management’s latest release on Tuesday, as oil prices fell. Dow Jones Industrial Average Down nearly 500 points.
Another weak economic reading points to the likelihood of the Federal Reserve cutting interest rates by at least a quarter-point later this month. Following the ISM report, traders raised the odds of a more aggressive half-point cut to 39%, according to the CME Group’s FedWatch gauge.
According to the survey, the employment index rose to 46% while inventories jumped to 50.3%. As for inflation, the price index rose to 54%, which may give the Fed some time to decide how far to fully cut interest rates.
The ISM's results were supported by another reading of the Standard & Poor's Purchasing Managers' Index, which showed a decline to 47.9 points in August from 49.6 points in July.
The S&P employment index fell for the first time this year, while a gauge of input costs rose to a 16-month high, another sign that inflation is still here if far from its mid-2022 highs.
“The further decline in the PMI suggests that the manufacturing sector is acting as an increasing drag on the economy in the middle of the third quarter. Forward-looking indicators suggest that this pressure could intensify in the coming months,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
