Orders for the products of U.S. manufacturers fell for the second consecutive month in July, the latest sign that the economy has lost its footing.
The Institute for Supply Management’s index of new orders fell 1.2 percentage points to a score of 48, the second consecutive month below 50, the level that divides an expansion from a contraction. ISM’s overall barometer of manufacturing fell two-tenths of a percentage point to 52.8, the lowest figure since June of 2020 and an indication that growth has continued to slow.
A survey by S&P Global Market Intelligence also found new orders for goods manufactured in the U.S. dropped for a second consecutive month. S&P Global’s broad index of manufacturing fell to 52.2 in July, down from 52.7 in June and a tick below the “flash” reading of 52.3. This is also the lowest level in two years and signals sluggish growth.
“The rising cost of living is the most commonly cited cause of lower sales, as well as the worsening economic outlook,” said Chris Williamson, the chief business economist for S&P Global Market Intelligence. “Companies are also taking an increasingly cautious approach to purchasing and inventories amid the gloomier outlook, and likewise appear to be cutting back on investment, with new orders falling especially sharply for business equipment and machinery in July.”
The scores come from each company’s surveys of purchasing managers, executives responsible for procuring goods and services for resale or company use. They are thought to have particularly keen insights into business activities and prospects. The indexes are known as Purchasing Manager Indexes—or PMIs for short.
They do not always agree. This month, for example, ISM said production continued to expand, albeit at a slower pace than in June. S&P Global said production declined in the month. S&P Global’s survey is thought to include a larger number of smaller manufacturers focused on production for domestic customers than ISM’s, which could explain some of the difference. ISM said half of the top six industries expanded production. Those were: Petroleum & Coal Products; Computer & Electronic Products; and Transportation Equipment.
“With the exception of pandemic lockdown periods, July saw US manufacturers report the toughest business conditions since 2009. A growth spurt in the spring has quickly gone into reverse, with new orders for factory goods down for a second straight month in July, leading to the first drop in production for two years and sharply reduced employment growth,” said Williamson.
ISM’s barometer of employment contracted for the third straight month. S&P Global said payroll growth weakened to the lowest level in six months.
There was some apparent good news on the inflation front. While prices continued to rise in both surveys, they showed a slowing pace of inflation.
“Supply chain problems remain a major concern but have eased, taking some pressure off prices for a variety of inputs. This has fed through to the smallest rise in the price of goods leaving the factory gate seen for nearly one and a half years, the rate of inflation cooling sharply to add to signs that inflation has peaked,” Williamson said.
ISM’s gauge of prices of raw materials dropped by a steep 18.5 points, the fourth largest decline in records going back to 1948.
“The slowing in price increases is being driven by (1) volatility in the energy markets, (2) softening in the copper, steel, aluminum and corrugate markets and (3) a significant decrease in chemical demand. Notably, 21.5 percent of respondents reported paying lower prices in July, compared to 8.3 percent in June,” said ISM’s Tim Fiore.
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