America’s factory malaise abated in August, the last of this week’s top-tier data out of the world’s largest economy suggested.
The country’s marquee gauge of manufacturing activity rose to a six-month high, albeit while remaining in contraction territory.
At 47.6, ISM topped estimates, but nevertheless spent a 10th month below the 50 demarcation line.
Meanwhile, S&P Global’s gauge was revised higher from the flash print. At 47.9, it’s virtually identical to ISM.
S&P Global’s Chris Williamson described “an increasingly steep deterioration in order books.” “Orders are in fact falling faster than factories are cutting output, suggesting firms will need to continue scaling back their production volumes into the near future,” he said Friday.
ISM new orders printed 46.8, down from 47.3 in July. On the bright side, and consistent with the upside surprise in factory job creation from August NFP, the employment gauge rose to 48.5, the highest since June.
“The US manufacturing sector shrank again, but the uptick in the PMI indicates a slower rate of contraction,” ISM’s Tim Fiore remarked, noting that companies are “managing outputs appropriately as order softness continues.” There are “sign[s] of improvement,” he said.
The prices paid gauge in the ISM report moved up meaningfully to 48.4. That was four points higher than consensus and the largest month-to-month jump since February.
I doubt it’s worth getting too bent out of shape about that. It’s still in contraction territory, and we knew this was coming: Commodity prices are firmer lately and the disinflationary tailwind from goods is fading.
As long as demand is soft, any inflationary impulse on the goods side should be muted absent a commodities shock, which is anyway out of monetary policy’s control.
Williamson underscored that assessment. “The deflationary impact of improving supply chains has peaked [but] falling demand is clearly continuing to dampen pricing power and is keeping overall inflationary pressures in the manufacturing sector very subdued,” he said.
All in all, the factory surveys point tentatively (and I emphasize that word) to a trough in manufacturing. From here, it’ll be a tug of war between, on one hand, economic deceleration and subdued confidence among manufacturers and, on the other, re-stocking.
