August 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey for August 2022 reflected no change among U.S. manufacturers reporting expansion. The PMI registered 52.8%, unchanged from July. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. Subindexes with the largest changes include input prices (-7.5PP), employment (+4.3PP), inventories (-4.2PP), and new orders (+3.3PP). 

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Activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- accelerated slightly in August (+0.2PP, to 56.9%). Order backlogs (-4.4PP), slow deliveries (-3.3PP), inventory sentiment (-3.0PP), and export orders (+2.4PP) exhibited the largest changes.

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Of the industries we track, only Real Estate and Construction expanded. Respondent comments included the following:

Construction. “Some pullback on projects by clients, but activity is still strong for our company. This has alleviated some labor availability issues. Generally, there has been improvement in lead times and prices, but still longer and higher, respectively, than in 2021.”

 

IHS Markit‘s survey headline results were more pessimistic than their ISM counterparts -- both Markit PMIs declined.

Manufacturing. PMI drops to lowest since July 2020 amid further loss of new orders.

Key findings:

* Output and new sales fall further
* Input cost inflation slowest since January 2021
* Delivery delays least extensive since October 2020

 

Services. Business activity contracts at sharpest pace since May 2020 amid solid fall in new orders.

Key findings:

* Renewed decline in new orders drives faster fall in output
* Rates of input cost and output charge inflation ease further
* Employment growth slowest since January

 

Commentary by Chris Williamson, Markit’s chief business economist:

Manufacturing. “US factory production was down for a second month running in August, with demand for goods having now fallen for three straight months amid the ongoing impact of soaring inflation, supply constraints, rising interest rates and growing economic uncertainty about the economic outlook.

“Barring the initial pandemic lockdowns months, this is the steepest downturn in US manufacturing seen since the global financial crisis in 2009.

“Worryingly, the sharpest drop in demand was recorded for business equipment and machinery, which points to falling investment spending and heightened risk aversion. Similarly, payroll growth slowed close to stalling, reflecting a growing reticence to expand workforce numbers in the face of a deteriorating demand environment.

“Falling demand for raw materials has, however, taken pressure off supply chains and helped shift some of the pricing power away from sellers towards buyers. Likewise, we are seeing more manufacturers reduce their selling prices to drive sales. Although still elevated by historical standards, the survey’s inflation gauges are now at their lowest for one and a half years, which should help to bring consumer price inflation down in the coming months.”

 

Services. “August saw the US economy slide into a steepening downturn, underscoring the rising risk of a deepening recession as households and business grapple with the rising cost of living and tightening financial conditions.

“Businesses are reporting a deterioration in output and order books of a degree exceeded since the global financial crisis only by that seen during the initial pandemic lockdowns.

“While orders are being lost across the board as a result of rising prices and the cost-of-living squeeze, the steepest downturn is being recorded in the financial services sector, reflecting the additional impact of higher interest rates and worsening financial conditions.

“Jobs growth has meanwhile cooled as companies grow increasingly reluctant to expand in the face of falling demand and an uncertain outlook, which will serve to further dampen growth in the coming months.

“One positive form the survey was a substantial fall in the rate of input cost inflation, which should help to moderate consumer price growth in the months ahead, albeit with the rate of increase remaining stubbornly elevated.”

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.