Another Month of Manufacturing Contraction: ISM Report

Another Month of Manufacturing Contraction: ISM Report

Aug. 2, 2023
“Demand remains weak but marginally better compared to June, production slowed due to lack of work, and suppliers continue to have capacity," said ISM.

For the ninth month in a row, economic activity in the manufacturing sector contracted, according to ISM's Report on Business. 

The July Manufacturing PMI registered 46.4%, 0.4 percentage point higher than the 46% recorded in June. Regarding the overall economy, this figure indicates an eighth month of contraction after a 30-month period of expansion. 

“The U.S. manufacturing sector shrank again, but the uptick in the PMI indicates a marginally slower rate of contraction," said Timothy Fiore, chair of ISM manufacturing business survey committee.“The Supplier Deliveries Index figure of 46.1% is 0.4 percentage point higher than the 45.7% recorded in June. In the last eight months, the Supplier Deliveries Index has recorded its eight lowest readings since March 2009

Other Index figures are as follows:.

  • The New Orders Index remained in contraction territory at 47.3%, 1.7 percentage points higher than the figure of 45.6% recorded in June.
  • The Production Index reading of 48.3% is a 1.6-percentage point increase compared to June’s figure of 46.7%.
  • The Prices Index registered 42.6%, up 0.8 percentage point compared to the June figure of 41.8%.
  • The Backlog of Orders Index registered 42.8%, 4.1 percentage points higher than the June reading of 38.7%
  • The Employment Index dropped further into contraction, registering 44.4%, down 3.7 percentage points from June’s reading of 48.%.

“Demand remains weak but marginally better compared to June, production slowed due to lack of work, and suppliers continue to have capacity," said Fiore. "There are signs of more employment reduction actions in the near term to better match production output. Ninety-two percent of manufacturing gross domestic product (GDP) contracted in July, up from 71% in June. However, the share of manufacturing GDP registering a composite PMI calculation at or below 45% — a good barometer of overall manufacturing weakness — was 25% in July, compared to 44% in June, a clear positive.

What Respondents are Saying

  • “Current U.S. market conditions of inflationary and recessionary tactics affecting overall business. Customers are reducing or not placing orders as forecast, (putting) internal focus on reducing financial liabilities and overhead costs.” [Computer & Electronic Products]
  • “Sales in our industry are extremely slow entering into the second half of the year, and no upturn is expected until at least the fourth quarter.” [Chemical Products]
  • “Demand is softening. Some pricing starting to decrease. Back orders mostly resolved.” [Transportation Equipment]
  • “Stable demand for the next four to six months, but longer-term uncertainty. While customer growth is projected, we cannot point to fundamentals that sustain it. Supply conditions are similar to pre-pandemic, except for energy and raw input costs. Logistics costs have settled, transit times continue to shorten and capacities at most suppliers are sufficient.” [Fabricated Metal Products]
  • “We are still in our slow season but will soon ramp up production to prepare for our busy season in late fall. Inventories aren’t changed much now but will be increasing soon. The reports on cooling inflation and consumer confidence are driving expectations of a very strong back half (of the year).” [Food, Beverage & Tobacco Products]
  • “Suppliers are starting to reach out looking for new business. Softening is occurring in the China markets.” [Machinery]
  • “Sales remain higher than forecast. Supplier capacity issues remain an issue.” [Miscellaneous Manufacturing]
  • “Semiconductor trade restrictions against China have negatively impacted our industrial business in North America.” [Electrical Equipment, Appliances & Components]
  • “June was a strong month, but July has been way off for construction.” [Nonmetallic Mineral Products]
  • “Order book continues to be strong. Working overtime to complete orders. Labor availability is still the number one constraint impacting production. Cannot find qualified salaried or skilled trades people to hire. Hourly temporary employees are of poor quality and walk off after taking the job.” [Primary Metals]