US Factory Activity Gauge Suggests Stabilization at Weak Level

A measure of US factory activity shrank less in August than a month earlier in a hopeful sign that the malaise in manufacturing is no longer deepening.

(Bloomberg) — A measure of US factory activity shrank less in August than a month earlier in a hopeful sign that the malaise in manufacturing is no longer deepening.

The Institute for Supply Management’s manufacturing gauge edged up to a six-month high of 47.6, from 46.4 in July, according to data released Friday. Readings below 50 indicate contraction.

The group’s gauge was helped by an increase in the production index to a three-month high of 50, as well as improvements in measures of employment and supplier deliveries.

While the overall gauge of manufacturing has contracted for 10 straight months, the figures hint conditions are stabilizing at weak levels. Producers are starting to see some signs of relief after companies made strides reducing an inventory overhang and consumer spending on merchandise picked up.

“The August composite index reading reflects companies managing outputs appropriately as order softness continues, but the month-over-month increase is a sign of improvement,” Timothy Fiore, chair of the ISM manufacturing survey committee, said in a statement.

Manufacturers’ inventories shank, matching the fastest pace of contraction since the start of 2014. Customer inventories also shrank. That’s consistent with recent data showing greater progress in reducing unsold goods.

The share of manufacturers that said their customers’ inventories were “about right” rose to 67.6%, the highest since February 2020.

The government’s revised second-quarter growth figures showed inventories fell for the first time in nearly two years.

Select ISM Industry Comments

“Further reductions in customer orders due to the economic situation and also their working down of own inventories. Backlog is dwindling, but still showing robust revenue.” – Computer & Electronic Products

“Customer inventories are getting depleted; however, we are not seeing a real uptick in demand. General supply conditions are softening.” – Chemical Products

“Customer orders have softened. This is likely due to customers’ increased confidence in the supply chain, (which) has them reducing their inventories. Customers are also being pinched with higher interest rates.” – Food, Beverage & Tobacco Products

“Fourth quarter orders falling short of projection and indicating a slowdown in customer demand, though the first quarter forecast remains solid.” – Fabricated Metals

“General slowdown in business at the end of the third quarter. For capital equipment additions, our customers are buying only what they need for specific jobs and not adding any capital fleet material for potential future work.” – Machinery

“There is additional softening in the market. Customers are hesitant to provide extended forecasts with today’s economic uncertainty.” – Electrical Equipment & Appliances

“Business is beginning to improve moderately. Still well below 2022 levels, but it appears that the ‘great inventory rebalancing’ is finally coming to fruition.” – Plastics & Rubber

“Continue to have issues recruiting general labor employees. Operational efficiency suffering due to a lack of human resources. Order book remains strong and ahead of 2022.” – Primary Metals

Producers are also finding relief in declining commodities prices. The group’s index of prices paid for materials showed costs fell for a fourth month, though at a slower pace in August.

(Adds ISM industry comments)

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