US Manufacturing PMI Misses Expectations: Softening Labor Market Conditions Raise Slowdown Fears

Economic statistics released on Aug. 1 delivered unwelcome news of a slower-than-expected rebound in the U.S. manufacturing sector, which continues to grapple with an extended period of crisis.

In parallel, there has been a decrease in the number of job vacancies, suggesting potential softening in the country’s labor market dynamics as markets await further key statistics this week, including Wednesday’s ADP employment change for July and Friday’s job reports on non-farm payrolls, unemployment rate, and wage growth.

Two indicators of manufacturing activity have been released, revealing the following values:

• The S&P Global U.S. Manufacturing PMI was confirmed at 49 for July 2023, indicating an improvement from June’s six-month low of 46.3.
  
• The ISM Manufacturing PMI saw a small uptick from 46 in June to 46.4 in July 2023, missing expectations of 46.8.

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ISM Manufacturing PMI for July: Key Takeaways

• June marked the ninth consecutive month of contractionary activity in the manufacturing sector.
  
• “The U.S. manufacturing sector shrank again, but the uptick in the PMI indicates a marginally slower rate of contraction. Of the six biggest manufacturing industries, only one — Petroleum & Coal Products — registered growth in July,” said Timothy R. Fiore, chair of the ISM Manufacturing Business Survey Committee.
  
• “Demand remains weak but marginally better compared to June, production slowed due to lack of work, and suppliers continue to have capacity. There are signs of more employment reduction actions in the near term to better match production output,” he added.
  
• Several subindices improved in July, including New Orders, Production, Supplier Deliveries, Inventories, Customers' Inventories, Backlog of Orders and Prices, all slowing the pace of contraction.
  
• Both employment and new export orders fastened the pace of contraction.

Job Openings Decline, Indicating Softening Labor Market Conditions

The Department of Labor simultaneously released the U.S. Job Openings and Labor Turnover Survey, more commonly known as the JOLTs for the month of June.

The number of job vacancies in the U.S. fell from a revised lower 9.616 million in May to 9.582 in June, below market expectations of 9.610 million.

The number of job quits decreased from 4.07 million in May to 3.772 million in June.

The ratio between the number of job openings and unemployed individuals, a key metric used by the Fed to evaluate labor market tightness, has declined to 1.65.

Market Reactions

Traders somewhat lowered their expectations for a September rate hike by assigning a probability of 18%, down from 20% earlier.

Stocks were volatile on Tuesday, with the S&P 500 index, as tracked by the SPDR S&P 500 ETF Trust SPY down 0.3% as of 10:15 a.m. ET.

The dollar rose, with the Invesco DB USD Index Bullish Fund ETF UUP, surging 0.5%.

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