The US economy is resilient.
So said top-tier data released on Thursday, less than 24 hours ahead of a crucial jobs report which, together with inflation figures for August, will decide the size of September’s Fed hike.
ISM manufacturing printed 52.8 for August (figure below), better than expected and near the top-end of the range from more than five-dozen economists. The headline gauge was unchanged from July. Consensus expected a deceleration in factory activity.
Separately (but relatedly), the final read on S&P Global’s manufacturing gauge for the US last month was 51.5, up slightly from the flash print, but still the lowest reading in more than two years.
ISM new orders rose back into expansion territory, perhaps allaying some concerns about deteriorating internals. The employment gauge hit a five-month high, jumping all the way to 54.2 from 49.9.
In a very notable development, the prices gauge tumbled another seven points to 52.5 (figure below), the fifth straight drop and the lowest in 26 months. It stood at 92 in June of 2021 and was above 80 as recently as May.
“New order rates returned to expansion levels, supplier deliveries remain at appropriate tension levels and prices softened again, reflecting movement toward supply/demand balance,” Timothy Fiore said Thursday.
He described hiring as “strong” and said there’s scant evidence of layoffs, hiring freezes or head-count reductions through attrition. Fewer people are quitting, sentiment is (still) optimistic and the “dramatic” deceleration in the pace of price increases “should bring buyers back into the market, improving new order levels,” especially in the context of easing lead times, Fiore added.
S&P Global’s Chris Williamson painted a slightly different picture. “Soaring inflation, supply constraints, rising interest rates and growing economic uncertainty” are conspiring to curb demand, he said, calling the recent downturn in US manufacturing “the steepest since the global financial crisis in 2009.”
Williamson also warned that demand fell the most for business equipment and machinery. That bodes ill for capex. Hiring nearly stalled, the S&P survey suggested, “reflecting a growing reticence to expand workforce numbers in the face of a deteriorating demand environment.”
Still, the two surveys agreed on at least one thing: Price pressures are receding. S&P Global’s price indexes are the lowest in a year and a half.
As ever, the ISM anecdotes were colorful. “Demand from customers is still strong, but much of that is because there is still fear of not getting product due to constraints,” someone in Computer & Electronic Products said. “They are stocking up. There will be a reckoning in the market when the music stops, and everyone’s inventories are bloated.”
