Macro Flash Report
ISM Manufacturing PMI
Takeaway:
After a prolonged period of fits and starts on the industrial side of the economy, July’s ISM Manufacturing PMI underscores the fact that a full recovery is still likely months away given the existing headwinds. The risk of a sustained demand driven rally in steel prices is unlikely given the continued restraint in activity.
ISM Manufacturing PMI & Demand – Inventories “forward look”
The ISM Manufacturing PMI notably dropped to 46.6 from 48.5 in June, considerably missing market expectations of 48.8, marking the sharpest contraction in activity since November 2023. This was the 20th decline in the last 21 months, highlighting the significant impact of high interest rates on demand for goods.
- New orders contracted further (47.4 vs 3), while backlogs remained falling at an unchanged pace (41.7), leading to a sharp decline in production (45.9 vs 48.5).
- Reduced demand for capacity caused employment to weaken for the second consecutive month (43.4 vs 4), hitting the worse level since COVID.
- Meanwhile, factory input prices rose at a faster pace (52.9 vs 1), driven by higher costs of metals and limited availability of electrical components.
**The “forward look” which comes from subtracting the inventory subindex from the demand components remains neutral at 50. This suggests that while both are well in contraction territory, they are currently offset and provide no indication on momentum in either direction driven by churn of business activity.
The manufacturing sector continues to face substantial challenges, with persistent contraction in activity and declining demand impacting production and employment, as well as the rise in input prices suggests ongoing pressure on supply chains. Looking ahead, the sector remains cautious, with hopes for stabilization potentially hinging on future interest rate cuts and easing economic uncertainties.