S&P Global’s Manufacturing surveys for August have not been pretty. Turkey, Italy, Germany, UK, the Eurozone aggregate, and Canada all printed below 50 this morning (in contraction) but US Manufacturing was expected to hold just above the Maginot Line at 51.3 and it did. However, the final August print of 51.5 (small improvement over the flash print) is the weakest since July 2020. The ISM Manufacturing survey was flat at 52.8 from July (better than the 51.9 expected)…
Interestingly, S&P Global notes that ‘delivery delays are the least extensive since October 2020’ – which in our new normal is actually a good sign that supply chain disruptions are easing, BUT – just as it impacted the index on the way up, the PMI model sees this as a negative since in the old normal this would imply a weakening of demand.
Meanwhile, S&P Global reports that employment rose at the second-slowest rate in over two years as new orders fell for the third successive month.
Under the hood of the ISM print, Prices Paid plunged but this survey claims employment and new orders improved
The picture remains very murky however, as one ISM respondent:
“Demand from customers is still strong, but much of that is because there is still fear of not getting product due to constraints. They are stocking up. There will be a reckoning in the market when the music stops, and everyone’s inventories are bloated.”
Additional comments are mixed:
“Sales in target business softening month-over-month, down 12 percent by revenue. Inventory days are increasing.” [Chemical Products]
“Inventories are far too high, and we are on pins and needles to see how quickly and at what magnitude our busy season begins. We will start seeing that in the next few weeks.” [Food, Beverage & Tobacco Products]
“Demand is softening; however, we are continuing to produce to replenish inventory.” [Primary Metals]
“Orders are still strong through the end of the year, but there is a feeling that customers may start pulling back on orders, either cancelling them or pushing them into 2023.” [Plastics & Rubber Products]
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:
“US factory production was down for a second month running in August, with demand for goods having now fallen for three straight months amid the ongoing impact of soaring inflation, supply constraints, rising interest rates and growing economic uncertainty about the economic outlook.
“Worryingly, the sharpest drop in demand was recorded for business equipment and machinery, which points to falling investment spending and heightened risk aversion. Similarly, payroll growth slowed close to stalling, reflecting a growing reticence to expand workforce numbers in the face of a deteriorating demand environment.
“Falling demand for raw materials has, however, taken pressure off supply chains and helped shift some of the pricing power away from sellers towards buyers. Likewise, we are seeing more manufacturers reduce their selling prices to drive sales. Although still elevated by historical standards, the survey’s inflation gauges are now at their lowest for one and a half years, which should help to bring consumer price inflation down in the coming months.”
Finally, we note that barring the initial pandemic lockdowns months, this is the steepest downturn in US manufacturing seen since the global financial crisis in 2009.