A worker handles 155 mm calibre shells after the manufacturing process at the Scranton Army Ammunition Plant in Scranton, Pa., on April 16, 2024. (Charly Triballeau/AFP via Getty Images)
Two key U.S. manufacturing gauges contracted in August, signaling a possible broader industry slowdown.
The Federal Reserve Bank of New York’s Empire State Manufacturing Survey—a monthly survey of 200 companies—contracted for the ninth consecutive month in August as business activity in the state weakened.
The report identified a decline in new orders and stagnating shipments. Employment levels fell while hours worked cratered. Input price pressures rose at a slower pace, and selling price increases were little changed.
Despite the poor reading, companies were optimistic that business conditions will improve over the next six months.
The Philadelphia Fed’s Manufacturing Business Outlook—a monthly survey of roughly 250 manufacturers in Delaware, eastern Pennsylvania, and southern New Jersey—unexpectedly turned negative for the first time since January and eased from a three-month high.
Researchers found an overall drop in manufacturing activity amid slower growth in new orders and shipments. Employment contracted this month.
On the inflation front, both main price indexes—prices paid and prices received—increased.
Unlike their New York counterparts, regional manufacturers conveyed expectations that conditions would deteriorate in the coming months.
The worse-than-expected releases came after the Fed reported that industrial and manufacturing production tumbled last month as Hurricane Beryl impacted the sector.
In July, industrial production fell by 0.6 percent, the first contraction since March. The decline was driven primarily by a sizable drop in the index for motor vehicles and parts (negative 8 percent) and utilities (negative 3.7 percent).
Manufacturing output decreased by 0.3 percent, the first decline since April. This was fueled by the 1.5 percent slide in mining.
An Industry Snapshot
Overall, the latest data mirrored the softness observed in the sector in a couple of other widely cited reports. This has led to growing concerns that the Federal Reserve’s restrictive monetary policy stance since March 2022, which has raised interest rates to their highest levels in more than two decades, is beginning to weigh on the industry.
A worker assembles cars at the newly renovated Ford's Assembly Plant in Chicago, June 24, 2019. (Getty/Jim Young/AFP)
“The U.S. economy has also experienced the most rapid and aggressive monetary policy tightening cycle for more than 40 years, while the rapid tightening of credit conditions in the wake of last year’s bank failures have provided another constraint on businesses and their customers,” said ING economists in a March 2024 research note.
The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI)—an indicator of the direction of economic trends in the sector—was entrenched in contraction territory for the fourth straight month in July and the 20th decline in activity in the last 21 months.
“Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and other conditions,” said Timothy Fiore, the ISM chair, in the report. “Production execution was down compared to June, likely adding to revenue declines, putting additional pressure on profitability.”
The alternative S&P Global Manufacturing PMI also slipped into contraction last month for the first time since December. The report reflected deteriorating business conditions at domestic manufacturers amid a slump in new orders and a tepid rise in input costs.
Firms anticipate that the market will improve following the November election, says Chris Williamson, the chief business economist at S&P Global Market Intelligence.
“The manufacturing recovery moved into reverse in July, though the gloomier growth picture was accompanied by a marked cooling of inflation in the goods-producing sector,” Williamson said. “Many firms are expecting the weakness to be temporary, linked to paused spending and investment ahead of the presidential election. However, firms’ expectations for output in one year’s time remain subdued by historical standards, reflecting additional concerns over the impact of higher interest rates and persistent inflation.”
State of Manufacturing
During the 1960s, manufacturing had contributed approximately 26 percent to the GDP. Today, it accounts for more than 10 percent of U.S. economic growth.
Still, the ISM’s latest manufacturing print flashed recession signals, according to John Belton, the portfolio manager at Gabelli Funds.
“U.S. economic data has been slowing for the last few months, and the July ISM manufacturing survey last Thursday showed some concerning forward-looking indicators with the new orders and employment components widely missing expectations and flashing recessionary figures,” Belton said in a note emailed to The Epoch Times.
In addition, InterMarket Forecasting, an investment research services firm, noted that downturns in the ISM Manufacturing PMI typically predict early-stage signs of a recession.
Manufacturing employment has also flatlined since August 2023. The industry has shed 13,000 positions so far this year, according to the Bureau of Labor Statistics (BLS).
The consensus among academic and business economists suggests the odds of a recession in the next 12 months are low.
As for the manufacturing industry, Apollo chief economist Torsten Slok, in an emailed statement to The Epoch Times, says the United States is witnessing an “industrial renaissance,” with manufacturing capacity “growing after having declined for many decades” amid an injection of public and private investment.
Andrew Moran has been writing about business, economics, and finance for more than a decade. He is the author of "The War on Cash."
