Manufacturing Sector Experiences Continued Contraction in July

TEMPE, Ariz. — Economic activity in the manufacturing sector has contracted for the fifth consecutive month this July, as reported by the latest Manufacturing ISM Report On Business. This follows a brief two-month expansion after a lengthy period of 26 months of contraction.

Key Findings from the Manufacturing ISM Report

The report, released by Susan Spence, MBA, chair of the Institute for Supply Management Manufacturing Business Survey Committee, reveals crucial statistics regarding the state of the manufacturing sector:

• The Manufacturing PMI (Purchasing Managers’ Index) registered at 48 percent in July, reflecting a 1-percentage point decline from June’s 49 percent.
• The overall economy continues to expand for the 63rd month since a brief contraction in April 2020; a PMI above 42.3 percent typically indicates economic growth over time.
• The New Orders Index indicates a contraction for the sixth consecutive month, registering 47.1 percent, marginally improved from June’s 46.4 percent.
• Meanwhile, the Production Index rose to 51.4 percent, up from June’s 50.3 percent, moving further into expansion territory.
• The Prices Index, reflecting industry pricing dynamics, showed growth at 64.8 percent, although it decreased by 4.9 percentage points compared to June.

Employment and Supplier Deliveries

The Employment Index fell to 43.4 percent, down 1.6 percentage points from June, indicating ongoing challenges in workforce stability. In contrast, the Supplier Deliveries Index improved, registering 49.3 percent, indicating faster delivery performance after months of slower service.

Export and Import Trends

The New Export Orders Index saw a slight contraction at 46.1 percent, while the Imports Index improved to 47.6 percent. These figures indicate persistent challenges in both domestic and international trade activities.

Sector Insights and Industry Responses

Notably, a significant portion of the manufacturing economy showed signs of contraction, with 79 percent of the sector’s GDP contracting in July. The seven manufacturing industries that reported growth include:

• Apparel, Leather & Allied Products
• Plastics & Rubber Products
• Nonmetallic Mineral Products
• Textile Mills
• Miscellaneous Manufacturing
• Furniture & Related Products
• Primary Metals

Conversely, 10 industries experienced contraction, including:

1. Printing & Related Support Activities
2. Paper Products
3. Chemical Products
4. Machinery
5. Wood Products
6. Fabricated Metal Products
7. Computer & Electronic Products
8. Transportation Equipment
9. Electrical Equipment, Appliances & Components
10. Food, Beverage & Tobacco Products

What Industry Leaders Are Saying

Industry leaders across various sectors have expressed concerns and observations as the economic landscape evolves:

• Computer & Electronic Products: “Fairly flat quarter over quarter; the recent legislation should result in increased business.”
• Chemical Products: “Sales are booming due to data-center construction, but pricing pressures from customers threaten margins.”
• Apparel, Leather & Allied Products: “Uncertainty from tariffs complicates financial forecasting and has led to unexpected costs.”
• Machinery: “Higher interest rates are hampering new projects; we need to shift sourcing strategies to mitigate risks.”
• Fabricated Metal Products: “Sales are softening, with strained negotiations amid persistent tariff issues.”

Conclusion

As the manufacturing sector grapples with ongoing challenges, including contraction in key indices, industry leaders remain cautiously optimistic yet vigilant. The mixed signals in production, employment, and trade dynamics reflect a complex economic landscape, prompting many businesses to adapt and navigate uncertainties moving forward.