Welcome to Extreme Investor Network, where we provide you with exclusive insights and analysis on the economy that you won’t find anywhere else. Today, we dive into the latest data from the Institute for Supply Management’s (ISM) manufacturing survey, which paints a picture of the current state of U.S. factories.
In August, U.S. factories continued to experience a slowdown, with just 47.2% of purchasing managers reporting expansion. This figure is below the 50% breakeven point for activity and falls short of the Dow Jones consensus forecast of 47.9%. While the contraction in manufacturing activity has slowed compared to the previous month, demand remains weak, output is declining, and overall economic indicators are not as strong as desired.
Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, highlighted the subdued demand in the manufacturing sector, attributing it to companies’ reluctance to invest in capital and inventory amid current federal monetary policy and election uncertainties.
Despite the contraction in manufacturing, Fiore noted that any reading above 42.5% generally indicates expansion across the broader economy. However, the weaker-than-expected reading last month triggered market volatility, with the S&P 500 experiencing significant losses before recovering.
Following the latest ISM report, there is speculation that the Federal Reserve may cut interest rates by at least a quarter percentage point later this month. Traders have even raised the odds of a more aggressive half-point reduction to 39%.
The employment index in the ISM survey edged higher to 46%, while inventories saw an increase to 50.3%. The prices index also rose to 54%, potentially influencing the Fed’s decision on the extent of the rate cut.
Another PMI reading from S&P further supports the ISM results, showing a decline to 47.9 in August. This decrease, coupled with a decline in the employment index and a rise in input costs, suggests that the manufacturing sector could exert a greater drag on the economy in the coming months.
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