The US manufacturing sector experienced its eighth consecutive month of contraction in July, reaching an eight-month low, according to the Institute for Supply Management’s (ISM) factory index. The PMI fell to 46.8, signalling a deeper contraction than the previous month.
This decline was attributed to weak demand, decreased production, and workforce reductions. Tim Fiore, chair of the ISM’s manufacturing survey committee, noted that demand remains subdued as companies are hesitant to invest in capital and inventory due to the current economic climate.
Despite the overall downturn, there was a glimmer of hope in the pricing data, which remained relatively stable, increasing by a mere 0.8 percent to 52.9. However, supplier deliveries slowed down, a surprising development given that parts availability is generally good, according to an electronics executive quoted in the ISM report.
The electronics sector, while still contracting, saw a decline in inventories and an increase in new orders, suggesting a potential recovery. This aligns with recent industry earnings calls indicating muted demand and high component inventories throughout the supply chain.
IPC’s June 2024 findings for North American Electronics Manufacturing Services (EMS) also revealed a weakening sector, with a book-to-bill ratio of 1.32 and declining shipments and bookings. Shawn DuBravac, IPC’s chief economist, noted that the stable book-to-bill ratio masks the underlying weakness in the EMS sector.
The manufacturing sector’s contraction is largely attributed to the interest rate hikes implemented over the past two years. Fiore believes that these increases have reached an inflection point, causing a significant impact on the industry. With demand remaining low and production declining, the manufacturing sector faces continued challenges in the coming months.
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