Experts, however, still anticipate ‘industrial renaissance’ amid public and private investment.
Two key U.S. manufacturing gauges contracted in August, signaling a possible broader industry slowdown.
The report identified a decline in new orders and stagnating shipments. Employment levels fell while hours worked cratered. Input price pressures rose at a slower pace, and selling price increases were little changed.
Despite the poor reading, companies were optimistic that business conditions will improve over the next six months.
Researchers found an overall drop in manufacturing activity amid slower growth in new orders and shipments. Employment contracted this month.
On the inflation front, both main price indexes—prices paid and prices received—increased.
Unlike their New York counterparts, regional manufacturers conveyed expectations that conditions would deteriorate in the coming months.
In July, industrial production fell by 0.6 percent, the first contraction since March. The decline was driven primarily by a sizable drop in the index for motor vehicles and parts (negative 8 percent) and utilities (negative 3.7 percent).
Manufacturing output decreased by 0.3 percent, the first decline since April. This was fueled by the 1.5 percent slide in mining.
An Industry Snapshot
Overall, the latest data mirrored the softness observed in the sector in a couple of other widely cited reports. This has led to growing concerns that the Federal Reserve’s restrictive monetary policy stance since March 2022, which has raised interest rates to their highest levels in more than two decades, is beginning to weigh on the industry.
The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI)—an indicator of the direction of economic trends in the sector—was entrenched in contraction territory for the fourth straight month in July and the 20th decline in activity in the last 21 months.
Firms anticipate that the market will improve following the November election, says Chris Williamson, the chief business economist at S&P Global Market Intelligence.
“The manufacturing recovery moved into reverse in July, though the gloomier growth picture was accompanied by a marked cooling of inflation in the goods-producing sector,” Williamson said. “Many firms are expecting the weakness to be temporary, linked to paused spending and investment ahead of the presidential election. However, firms’ expectations for output in one year’s time remain subdued by historical standards, reflecting additional concerns over the impact of higher interest rates and persistent inflation.”
State of Manufacturing
During the 1960s, manufacturing had contributed approximately 26 percent to the GDP. Today, it accounts for more than 10 percent of U.S. economic growth.
Still, the ISM’s latest manufacturing print flashed recession signals, according to John Belton, the portfolio manager at Gabelli Funds.
“U.S. economic data has been slowing for the last few months, and the July ISM manufacturing survey last Thursday showed some concerning forward-looking indicators with the new orders and employment components widely missing expectations and flashing recessionary figures,” Belton said in a note emailed to The Epoch Times.
As for the manufacturing industry, Apollo chief economist Torsten Slok, in an emailed statement to The Epoch Times, says the United States is witnessing an “industrial renaissance,” with manufacturing capacity “growing after having declined for many decades” amid an injection of public and private investment.