#307959246@Ramirezom\Dreamstime
Manufacturing Sector Unable to Shed Weight of Interest Rates

Manufacturing Sector Unable to Shed Weight of Interest Rates

July 1, 2024
"Sustained improvement is likely to wait until the Fed begins cutting rates in September," says Oxford Economics.

Economic activity in the manufacturing sector contracted in June for the third consecutive month and the 19th time in the last 20 months, according to ISM. The Manufacturing PMI registered 48.5% in June, down 0.2 percentage point from the 48.7% recorded in May. 

“The manufacturing sector continued to struggle under the weight of high interest rates last month, with tepid demand for new inventory and capital goods from businesses,” said Matthew Martin, US Economist at Oxford Economics." Boosts from the IRA and CHIPS Act related investments should support production in the near-term, but a sustained improvement in the sector is likely to wait until the Fed begins cutting rates in September.

“The ISM manufacturing index fell for the third consecutive month, with businesses reducing headcount amid slower production levels. New orders remained in contraction territory, though they fell at a slower pace. The bright spot of the report was the marked decline in the prices index, which signaled the slowest pace of expansion in prices this year despite rising shipping costs and volatile commodity prices.”

Index highlights include:

  • The Supplier Deliveries Index registered 49.8%, 0.9 percentage point higher than the 48.9% recorded in May.
  • The Inventories Index registered 45.4%, down 2.5 percentage points compared to May's reading of 47.9%.
  • The New Orders Index remained in contraction territory, registering 49.3%, 3.9 percentage points higher than the 45.4% recorded in May. 
  • The New Export Orders Index reading of 48.8% is 1.8 percentage points lower than the 50.6% registered in May. 
  • The Imports Index dropped into contraction territory, registering 48.5%, 2.6 percentage points lower than the 51.1% reported in May.
  • The Production Index 48.5 % is 1.7 percentage points lower than May's figure of 50.2%. 
  • The Prices Index registered 52.1%, down 4.9 percentage points compared to the reading of 57% in May. 
  • The Backlog of Orders Index registered 41.7%, down 0.7 percentage point compared to the 42.4% recorded in May.
  • The Employment Index registered 49.3%, down 1.8 percentage points from May's figure of 51.1%.

What respondents are saying:

  • "High volume of customer orders." [Chemical Products]
  • "Customers continue to cut orders with short notice, causing a ripple effect throughout lower-tier suppliers." [Transportation Equipment]
  • "Consumer demand and inventories are no longer stable at retail and food service establishments." [Food, Beverage & Tobacco Products]
  • "While orders are still steady, inventory from the previous month is enough to satisfy current- and near-term commitments." [Computer & Electronic Products]
  • "Customers ordering more to create buffer stocks (in case of) future shortages." [Electrical Equipment, Appliances & Components]
  • "Order levels in two of our main divisions are indicating weak demand, and now we must work to reduce inventory levels." [Fabricated Metal Products]
  • "Sales backlog is decreasing. We have furloughed a portion of our workforce as a result." [Machinery]
  • "The level of production is lower due to decreased demand for products." [Miscellaneous Manufacturing]
  • "Elevated financing costs have dampened demand for residential investment. We have reduced inventories of production components." [Wood Products]
  • "Orders have increased slightly due to seasonal restocking." [Plastics & Rubber Products]

Latest from Global Supply Chain

#198695857@Pramote Polyamate|Dreamstime
Manufacturing Sector Still Contracting: ISM
#292530538@Lightfieldstudiosprod|Dreamstime
Holidays Sales to Hit New Record: NRF