Manufacturing sector sees slowing demand, declining production and falling employment
“The wheels on the bus keep turning” Kamala Harris singsand is seen laughing out loud with her signature laugh in videos that are frequently shared on social media.
unfortunately, U.S. manufacturing isn't just spinningIt all seems to have peeled off.
of Institute of Supply ManagementThe August reading from a survey of so-called purchasing managers of U.S. manufacturers was worse than expected, as the sector contracted for a fifth straight month and 21 of the past 22 months.
Here she is getting on the bus 🚌
🔊😆 pic.twitter.com/hoeW68IP49— Gimme3Steps (@TheSouthGAJohn) August 28, 2024
An index tracking new orders, a key indicator of demand, fell 2.8% in August from July, and the production index also fell. Customer inventories are seen as “just right,” which is actually a bearish indicator for future orders and production, since it means that inventories are not expected to expand. Employment has declinedHowever, the pace slowed slightly compared to the previous month.
“Demand remains subdued as current federal monetary policy and election uncertainty make businesses reluctant to invest in capital and inventory,” explained Timothy Fiore of the Institute for Supply Management (ISM).
It is surprising that “current federal monetary policy” is discouraging investment in capital and inventory, even as the Federal Reserve has made it clear it will continue to cut interest rates for several weeks. The 10-year Treasury yield has fallen about 44 basis points since the end of July, which is effectively The Federal Reserve has already cut interest rates For the purposes of the long-run portion of the curve that most influences a firm's borrowing costs.
Aftermath of the Global Financial Crisis
We're used to seeing gloomy manufacturing news from the ISM report, but this month it was joined by a report from S&P Global showing contraction. According to the S&P PMI, production fell for the first time in seven months. This comes as companies cut production amid signs of weakening demand.
Chris Williamson, chief business economist at S&P Global, said: A disastrous analysis:
“The further decline in the PMI indicates that manufacturing is becoming a drag on the economy midway through the third quarter, and forward-looking indicators suggest that this drag may intensify in the coming months.”
Weaker-than-expected sales have left warehouses filling with unsold stock and a lack of new orders has led factories to cut production for the first time since January. Producers are also cutting staff numbers for the first time this year and buying less raw materials amid concerns about overcapacity.
The combination of falling orders and rising inventories signals the gloomiest manufacturing outlook in a year and a half, and one of the most worrying signs since the global financial crisis.”
Official analysis of the PMI report typically seeks to avoid overt political interpretations, but comments from the industry this month included: Concerns about Kamala Harris' victory It is suppressing demand. Keep in mind that one of the biggest new sources of “uncertainty” surrounding the election is the rise in Harris' approval ratings following her successful campaign to pressure Joe Biden to drop out of the race.
“The economy is in the doldrums and isn't expected to recover until after the election, and we remain deeply concerned about rising environmental costs of energy as we prepare our 2025 budget,” a paper products industry executive told ISM.
“New orders are sluggish at best. Interestingly, despite the decline in orders, inquiries are increasing. Customers say funding has been approved for equipment purchases, but they have been instructed to put projects on hold until the fourth quarter of 2024, which is an indication of the uncertainty surrounding the election. We expect the end of the year to be strong and the backlog to increase going into 2025,” said an executive in the mechanical products division.
“There is a noticeable slowdown in business activity. People have started cutting jobs and streamlining production. Previous optimism about future growth has been dashed,” said an executive at a chemical manufacturing company.
While some may take solace in the fact that a rate cut by the Federal Reserve is imminent, Easing monetary policy will be enough To offset the financial burden on the Harris administration.
