Key Points:
- The ISM’s monthly survey showed that 47.2% of purchasing managers reported expansion in August, slightly better than July but below expectations.
- Another weak economic reading boosts the likelihood of the Fed cutting interest rates by at least a quarter percentage point this month.
U.S. manufacturing remained in slowdown mode in August, fueling concerns about the economy’s future, according to key reports.
The Institute for Supply Management (ISM) survey revealed that 47.2% of purchasing managers reported growth, still below the 50% level that indicates expansion. Although this was slightly up from July’s 46.8%, it missed the Dow Jones estimate of 47.9%.
“While still in contraction territory, U.S. manufacturing activity contracted slower compared to last month. Demand continues to be weak, output declined, and inputs stayed accommodative,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.
“Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and election uncertainty,” he added.
While the ISM index signals contraction in manufacturing, Fiore noted that any reading above 42.5% generally indicates overall growth in the broader economy.
Last month’s disappointing report had already shaken the markets, with the S&P 500 dropping about 8.5% before bouncing back. Stocks declined further after the latest ISM release, with the Dow Jones Industrial Average falling nearly 500 points.
The weak economic data also increases the likelihood of the Federal Reserve cutting interest rates by at least a quarter-point later this month. After the ISM report, traders raised the probability of a more aggressive half-point cut to 39%, according to the CME Group’s FedWatch tool.
The ISM survey showed a slight uptick in the employment index to 46%, while inventories rose to 50.3%. Meanwhile, the prices index moved up to 54%, signaling continued inflation pressures, which could give the Fed pause when considering its rate cuts.
Supporting the ISM data, a separate report from S&P showed its PMI index dropped to 47.9 in August from 49.6 in July. The S&P employment index fell for the first time this year, and input costs surged to a 16-month high, pointing to persistent inflation.
“A further downward lurch in the PMI points to the manufacturing sector acting as an increased drag on the economy midway through the third quarter. Forward-looking indicators suggest this drag could intensify in the coming months,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Source: CNBC
