US July PMI ticks lower, but economy continues to expand

Adam Yanelli

01-Aug-2022

HOUSTON (ICIS)–US manufacturing grew for a 26th consecutive month in July, but at a slower pace than in June, according to the Institute for Supply Management’s (ISM) latest purchasing managers’ index (PMI) survey on Monday.

The July PMI came in at 52.8%, down by 0.2 percentage points from 53% in June.

Readings of above 50% indicate an expansion in manufacturing activity.

ICIS senior economist Kevin Swift said that while the overall economy continues to expand, there is some cause for concern in the data.

“Manufacturing is still holding up, but I find the second month of contracting new orders troubling,” Swift said.

“Even more troubling is that the pace of contraction accelerated,” Swift said. “A decline in new orders may eventually spread to other components of the PMI, notably production.”

The July PMI is the lowest reading since June 2020 as new order rates continue to contract, supplier deliveries improve, and prices soften to acceptable levels.

The July data showed 11 of the 18 manufacturing industries expanded, with the chemical industry one of the seven in contraction after registering moderate-to-strong growth in the previous month.

July PMI Survey:
Index Series Index July Series Index June Percentage point change
Manufacturing PMI 52.8 53.0 -0.2
New Orders 48 49.2 -1.2
Production 53.5 54.9 -1.4
Employment 49.9 47.3 +2.6
Supplier Deliveries 55.2 57.3 -2.1
Inventories 57.3 56.0 +1.3
Customers’ Inventories 39.5 35.2 +4.3
Prices 60 78.5 -18.5
Backlog of Orders 51.3 53.2 -1.9
New Export Orders 52.6 50.7 +1.9
Imports 54.4 50.7 +3.7

Source: ISM

While the US economy rebounded from COVID-19 lockdowns because of strong demand, the July report showed consumers are beginning to alter their spending habits.

Swift pointed to the contraction in the New Orders Index as a sign of softening demand, along with the Customers’ Inventories Index remaining low but nearing 40%, and the Backlog of Orders Index decreasing while remaining in growth territory.

However, there were six positive growth comments for every cautious comment.

Price expansion eased dramatically in July, but instability in global energy markets continues, Swift said.

“Panellists are now expressing concern about a softening in the economy, as new order rates contracted for the second month amid developing anxiety about excess inventory in the supply chain,” Swift said.

Swift made the following additional comments:

  • Consumption was mixed, with a combined positive 1.2-percentage point impact on the PMI.
  • The Employment Index contracted for the third month in a row after expanding for eight straight months, but panellists again indicated month-over-month improvement in hiring ability in July.
  • Challenges with turnover (quits and retirements) and resulting back-filling continue to plague efforts to adequately staff organisations.
  • Inputs (supplier deliveries, inventories, and imports) continued to constrain production expansion, but to a significantly lesser extent compared to June.
  • Deliveries Index indicated deliveries slowed at a slower rate in July, which was supported by an increase in the Inventories Index.
  • The Imports Index continued to expand in July after one month of contraction preceded by six straight months of growth.
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