The Institute for Supply
Management‘s (ISM) monthly sentiment survey for June 2022 reflected a smaller proportion
of U.S. manufacturers reporting expansion. The
The services sector -- which accounts for 80% of the economy and 90% of employment -- grew more slowly in June (-0.6PP, to 55.3%). Order backlogs (+8.5PP), imports (-6.5PP), and inventories (-3.5PP) saw the largest changes. Service input-price increases also decelerated (-2.0PP).
Of
the industries we track, Wood Products and Paper Products contracted. Respondent comments included
the following:
Construction. “[Interest] rate increases have slowed sales but
have not helped with supply challenges yet.”
IHS Markit‘s
survey headline results those of their ISM counterparts.
Manufacturing. PMI falls to near two-year low in June amid
contraction in client demand.
Key findings:
*
Output broadly flat as firms see fresh drop in new orders
* Inflationary pressures ease
* Future output expectations drop to lowest since October 2020
Services. New orders decline for first time since July 2020.
Key findings:
*
Renewed contraction in new business
* Slower rise in activity, while business optimism drops
* Further sharp increase in input costs
Commentary
by Chris Williamson, Markit’s chief business economist:
Manufacturing. “The PMI survey has fallen in June to a level
indicative of the manufacturing sector acting as a drag on GDP, with that drag
set to intensify as we move through the summer. Forward-looking indicators such
as business expectations, new order inflows, backlogs of work and purchasing of
inputs have all deteriorated markedly to suggest an increased risk of an
industrial downturn.
“Demand
growth is cooling from households amid the cost-of-living crisis, and capital
spending by companies is also showing signs of moderating due to tightening
financial conditions and the gloomier outlook. However, most marked has been a
steep drop in orders for inputs by manufacturers, which hints at an inventory
correction.
“Some
welcome news is that the drop in demand for inputs has brought some pressure
off supply chains and calmed prices for a wide variety of goods, which should
help alleviate broader inflationary pressures in coming months.”
Services. "June saw signs of a broad-based weakening of
the economy with demand now falling in both the manufacturing and service
sectors. While the survey data point to a stalling of GDP at the end of the
second quarter, a downshifting in the forward-looking new orders index and drop
in companies' future output expectations hints at falling economic activity as
we head through the summer.
"Demand
for goods and services from households is showing signs of moderating substantially
due to the rising cost of living. Meanwhile, tighter financial conditions are
starting to hit, and it was notable that the service sector slowdown was led by
a steep drop in financial services activity.
"Meanwhile
there was welcome news in terms of a marked easing in upward price pressures,
but it's clear that price growth remains elevated despite coming off recent
peaks, all of which points to a bout of stagflation in the near term."
The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.
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