Growth in the US manufacturing sector remained flat in August, as demand rebounded and employment improved against a backdrop of high inflation and concerns of a coming recession.
The Institute for Supply Management said its index tracking factory activity remained unchanged at 52.8 in August, surpassing economists’ forecast for a reading of 52. Any reading above 50 indicates the sector is expanding.
The employment index expanded for the first time since April and reported a reading of 54.2 from 49.9 in July, as a larger share of business respondents reported hiring and turnover rates eased in August.
After contracting in the past two months, new orders grew in August to a reading of 51.3, signalling that demand is still strong amid an inflationary environment. There were also reports that prices for raw materials increased at a slower rate in August.
“Sentiment remained optimistic regarding demand, with five positive growth comments for every cautious comment,” said Timothy Fiore, chair of the ISM manufacturing business survey committee. “Panellists continue to express unease about a softening economy, with 18 per cent of comments noting concern about order book contraction.”
Production and inventories slowed to a reading of 50.4 and 53.1, respectively. Fiore said he expects production to expand in September as quits — a measure of employees leaving their jobs — ease and supplier deliveries improve.
Still, the macroeconomic backdrop could impinge factory activity for the rest of the year. Oren Klachkin, lead US economist at Oxford Economics, expects the final months of 2022 to be “quite challenging” for manufacturers.
“Soft domestic demand and recession worries will weigh on growth while supply chain struggles continue to bite,” Klachkin said. “Cost pressures will stay fairly high and hawkish Fed policy will put upward pressure on interest rates.”