The Institute for Supply
Management‘s (ISM) monthly sentiment survey of U.S. manufacturers reflected slower
contraction in the sector during July. The
Concurrent activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- expanded more slowly (-1.2PP, to 52.7%). Order backlogs (+8.2PP), inventories (-5.5PP), and prices paid (+2.7PP) exhibited the largest changes.
Of
the industries we track, Real Estate and Construction expanded. Respondent
comments included the following --
Real
Estate. “Sales have been steady.”
Changes
in S&P Global‘s survey
headline results were consistent with ISM’s. Details from S&P Global’s
surveys follow --
Manufacturing. Decline in manufacturing performance softens in July.
Key findings:
* Output little changed as contraction in new orders eases
* Renewed rise in input costs
* Employment growth quickens amid stronger optimism
Services. Business activity growth eases as demand conditions
soften in July.
Key findings:
* Slower rise in new business despite sharper uptick in exports
* Input cost inflation eases but selling prices rise at faster pace
* Employment growth weakens
Commentary
by Chris Williamson, S&P Global’s chief business economist --
Manufacturing. “Manufacturing continues to act as a drag on the US
economy, the recent spell of malaise persisting at the start of the third
quarter. However, producers are clearly shrugging off recession fears and
planning for better times ahead.
“The
sector continued to suffer from lower demand, as a post-pandemic shift in
spending from goods to services, and an ongoing trend of cost-focused inventory
reduction, led to a further drop in orders. The overall rate of order book
decline nevertheless moderated during the month, helped by a slower decline in
exports, to help stabilize production.
“There
were several other encouraging bright spots in the survey, most notably
including a marked improvement in business expectations for output in the year
ahead. Firms are therefore anticipating the current soft patch to soon pass,
and importantly are hiring more staff as a result.
“There
was also good news on the inflation front. The combination of weak demand and
improved supply led to a further “buyers’ market” for many goods. Prices
charged for goods consequently barely rose for a third straight month, which
should help subdue consumer price inflation in the near term.”
Services. “The service sector remains the main engine of
growth in the US economy, though there are signs of the motor spluttering amid
rising headwinds. Business activity rose in July at the slowest rate since
February, with the rate of expansion sliding further from May’s recent peak in
response to sharply reduced growth of new business. Although spending from
foreigners in the US continues to grow strongly as the post-pandemic travel
surge shows signs of persisting, demand growth waned from domestic customers,
often linked to the rising cost of living and higher interest rates.
“Reflecting
concerns that the upturn is faltering, companies have become much less
optimistic about the outlook and reined-in their hiring as a result.
“An
additional concern is that prices charged for services rose at an accelerated
rate in July, often linked to higher staff costs. Such a wage-led stickiness of
inflation in the vast service sector will naturally worry policymakers.
“With
the weakening service sector expansion accompanied by a near-stalled
manufacturing sector, the overall message from the surveys is that economic
growth weakened at the start of the third quarter, cooling to an annualized
rate of around 1.5%. The survey’s price gauges, however, continue to signal a
stubbornness of inflation around the 3% mark.”
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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