Despite the recent resurgence in upside surprises for US macro data, the US Manufacturing sector remains deep in contraction (sub-50) based on the ISM and PMI surveys driven by a sharp fall in new orders.
S&P Global US Manufacturing 46.3 for June, down from 46.9 prior.
US ISM Manufacturing 46.0 in June, down from 46.9, big miss relative to 47.2 exp
Source: Bloomberg
For context, S&P Global's US Manufacturing is basically at Dec 2022 lows (which absent the spike low during COVID lockdowns is the worst descending print since Lehman...
Under the hood of the ISM report, Employment, New Orders, and Prices Paid (a big miss) all tumbled into contraction...
Source: Bloomberg
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:
“The health of the US manufacturing sector took a sharp turn for the worse in June, adding to concerns over the economy potentially slipping into recession in the second half of the year.
“Leading the darkening picture was a severe drop in demand for goods, with new orders slumping at a rate among the steepest since the global financial crisis of 2009. Companies report that customers have become increasingly reticent to spend amid the rising cost of living, higher interest rates, growing concerns about the economic outlook and a switch in spending to services.
“Exacerbating the downturn has been a continued focus on inventory reduction as manufacturers, their suppliers and their customers all seek to cut warehouse stocks in the face of weakening demand.
“In this environment, pricing power is fading rapidly. Prices charged for inputs by suppliers are now falling at a rate not seen since 2009 barring only the early pandemic lockdown months. Prices charged for goods leaving the factory gate meanwhile barely rose in June amid increasing reports of discounting, indicating a near-total collapse of inflationary pressures in the goods-producing sector.
“The focus now turns to the service sector, where inflationary pressures have been more stubborn in recent months amid resurgent post-pandemic demand. The big question is how long this service sector spending can be sustained in the face of headwinds from the cost of living and higher interest rates.”
