EconoFACTS

July 01, 2022 | 10:43

U.S. Manufacturers Not Heating Up This Summer

Economist

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

It's been a difficult month for manufacturers worldwide. Just take a look at some of the PMI figures that were released over the last 12 hours. Euro Area manufacturing PMI fell to its lowest level since the summer of 2020. Ditto for the U.K., while Japan kept it to a near one-year low. China, thanks to its reopening efforts, saw the Caixin manufacturing PMI rise to an above-expected 51.7 in June, the highest since May 2021, so it is a special case.

In the U.S., activity slowed markedly. The ISM manufacturing PMI fell for the fourth time in the past six months, with June's 3.1 pt drop leaving it at 53.0, the lowest since June 2020. Of the five equally-weighted components, well, take a look for yourself:

new orders -5.9 pts to 49.2, lowest since May 2020, which was also the last time it was sub-50
employment -2.3 pts (3rd decline in a row) to a near 2-year low of 47.3, the second time the component has contracted
inventories +0.1 pts to a 7-month high of 56.0
production +0.7 pts (2nd improvement in a row) to a 4-month high of 54.9
supplier delivery delays -8.4 pts (2nd improvement in a row) to 57.3, lowest since July 2020

The decline in new orders stood out and is concerning, even as supplier delivery delays eased. The comments from the respondents (note that 15 of the industries grew last month, matching May) were shorter and mixed. There were a couple of mentions of softer orders (computer & electronics and machinery), high inventories (fabricated metals, apparel, leather & allied products), and supply problems (primary metals, petroleum & coal). But three mentioned either stable or rising orders (chemicals, transportation, food/bev). Like I said... a mix.

On the employment front, the struggle to find people continues, though more firms (14%) said that it was getting better. But, and this is still a positive, "an overwhelming majority of panelists again indicate their companies are hiring."

In a separate release, U.S. construction spending slipped 0.1% in May, though April's 0.2% increase was revised up sharply to +0.8%. But thanks to benchmark revisions, momentum has slowed since the year began, so construction in Q2 is looking much slower than the first quarter.