US Manufacturing Contracts for Fifth Month, Key Indices Soften

According to the latest report released by the Institute for Supply Management (ISM), US manufacturing contracted in July for the fifth consecutive month since January.

The report noted that the PMI for manufacturing in July was 48%, down 1 percentage point from June. The ISM explained that if the PMI remains above 42.3% for an extended period, it typically indicates a expansionary economy. Despite the manufacturing sector's pressures, the US economy has continued to grow since April 2020, when COVID-19 triggered a brief contraction, with a streak of 63 consecutive months.

ISM Manufacturing Business Survey Committee Chair Susan Spence stated that the decline in manufacturing activity was mainly driven by two major factors: "supplier deliveries" and "employment." Despite improvements in production, the overall indicator shows that companies remain cautious about their future outlook.

In terms of detailed data, the new orders index recorded 47.1%, still within the contraction range but up 0.7 percentage point from June, indicating a slowdown in order reductions. The production index stood at 51.4%, up 1.1 percentage points from June and entering expansionary territory, reflecting some manufacturers' increased capacity.

The employment index recorded 43.4%, down 1.6 percentage points from last month, indicating that companies are generally maintaining their current workforce levels and remain cautious about new hiring.

In terms of supply chain, the supplier deliveries index dropped to 49.3%, down 4.9 percentage points from June's 54.2%. The ISM explained that this is the only backward-looking index in the report that indicates a decline in delivery speed, which shows that supply chain efficiency has improved due to reduced demand.

In international trade, the new export orders index was 46.1%, down 0.2 percentage points from June; the import index stood at 47.6%, slightly higher than June's 47.4%, both within contraction ranges and reflecting weak demand both domestically and internationally.

Spence stated that despite production activity increasing, employment has not kept pace, with most surveyed companies prioritizing "managing personnel" rather than expanding their teams. The production index improved but did not drive hiring, indicating companies' lack of confidence in future market demand.

In terms of input factors (including supplier deliveries, inventory, prices, and imports), the overall trend shows a more pronounced contraction. Inventory index returned to the contraction range after a brief expansion in April, with companies generally adjusting their inventory structures to accommodate current market demand. Supplier delivery speed accelerated on one hand, reflecting supply chain recovery, while also indicating that end-demand remains insufficient to exert pressure on logistics.

The report concluded that about 79% of manufacturing industries in the US experienced a contraction in July, up significantly from June's 46%. Of these, about 31% were in a "strong contraction" (PMI below 45%), higher than June's 25%. This data is considered an important indicator of the overall weakness in the manufacturing sector.

Despite individual indices showing some warming, the overall manufacturing performance remains soft and continues to contract, indicating that the sector will struggle to break out of its slump in the short term. With inventory adjustments continuing, hiring intentions remaining low, and order growth limited, US manufacturing still needs to be cautious about market changes in the coming months.