US Manufacturing Shows Signs of Recovery!

Weekly Market Snapshot

• The manufacturing sector in the United States showed optimism of stabilizing in July 2023.

 Behind the Headlines: What happened?

The health of the US manufacturing sector was the central focus this week as the latest report from the S&P Global Manufacturing PMI saw an increase to 49 in July 2023, outperforming the reading of 46.3 in June 2023. Similarly, the Institute for Supply Management (ISM) indicated that the manufacturing PMI of Uncle Sam increased marginally to 46.4 last month. This outperformed the 46.0 recorded in June 2023 which was the lowest reading since May 2020. This increase in the manufacturing sector was attributed to the gradual improvement of new orders in the United States.

S&P Global Manufacturing PMI Rises to 49.0 in July 2023

Connecting the Dots:

The Purchasing Managers Index (PMI) measures the economic activity of the manufacturing sector of a nation. An increase above 50 signifies expansion while a reading below 50 represents contraction. The rise from the latest report to 49.0 for the month of July 2023 was the closest reading to the 50 threshold for the past three months. However, there wasn’t much to write home about as new orders declined again with domestic and external demand remaining flat.

The S&P Global Manufacturing PMI measures the responses of around 800 manufacturers in a questionnaire on their perception of the state of demand for their  products within the reviewed month. Thus, the increase in July presents optimism that a light at the tunnel could be fast approaching and the next reading could exceed the 50 benchmark that signifies growth in the manufacturing sector.

The Bottom Line:

While the S&P report offered a glimpse of hope in the manufacturing conditions, did this cause much of a relief to Americans? Hitting the nail on the head to this question would be feasible in the coming months as the interest rate hike campaign by the Federal Reserve has added fuel to the fire on the manufacturing sector, which accounts for 11% of the US economy.

Furthermore, the ISM manufacturing index was also reported to have risen to 46.4 last month, outperforming the 46.0 reading for June 2023. However, this represents the ninth consecutive month that the PMI fell below the 50 threshold and this confirms that Uncle Sam’s manufacturing sector is on an unwanted streak of experiencing the longest run of such contraction since the Great Recession.

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