The global economy has slowed since prices began to skyrocket early last year, and central banks have followed suit by raising interest rates, both of which are straining the global economy, especially the West. Manufacturing was the first sector to fall into recession and has been hit hardest as others have followed suit.
But there were some bright spots this week, starting with China’s manufacturing PMI index rising from 49.3 in July to 49.7 in August, beating expectations of a further slowdown of 49.1. This has improved sentiment somewhat following recent problems in the Chinese economy.
China’s Caixin Manufacturing PMI was released again on Friday with even better results. The index climbed to 51.0 points in July after it was expected to fall to 49.0 points from 49.2 points in August. This indicates that the sector may have left a contraction behind, which is a great sign. The subsequent US session also featured ISM Manufacturing, which saw him improve to 47.6 points from his 46.4 points last month, as shown in the report below. However, these are just symptoms as the global economy is still slowing. But traders are already hopeful, so let’s wait for more data.
August 2023 ISM Manufacturing PMI Highlights
Manufacture of ISM
- August ISM manufacturing PMI 47.6 points, forecast 47.0 points
- Manufacturing PMI in July was 46.4 points
- The price paid was 48.4pts versus the expected 43.9pts.Last month it was 42.6 points
- Employment 48.5 points vs. forecast 44.2 points.Last month it was 44.4 points
- New Order 46.8 points vs Previous 47.3 points
- Preliminary report 46.4 points
- The price paid was 48.4pts and the forecast was 43.9pts.42.6 points last month
- Employment 48.5 points vs. forecast 44.2 points.44.4 points last month
- New Order 46.8 points vs Previous 47.3 points
The manufacturing industry has been in recession for some time, but some buds are emerging. I think this investigation will be a mess for the next few months as the auto workers strike seems to be approaching. The report led to the sale of the bonds, in part because of the high payment prices. Given energy prices, I don’t think this is surprising. So the US dollar ended the day on Friday.
Comments from the ISM report:
- “Economic conditions and reductions in our own inventory will further reduce customer orders. Backlog is reduced, but we are still showing strong earnings.” [Computer & Electronic Products]
- “Demand remains weak. Customer inventory is running outbut we are not seeing any real increase in demand. Overall supply conditions are softening. ” [Chemical Products]
- “We are still seeing a slowdown in orders. Supply constraints are still a real part of our daily operations, but we are continuing to ship until we reach full capacity.” [Transportation Equipment]
- “Customer orders are softening. This is likely due to increased customer confidence in the supply chain and reduced inventories. Customers, too, have been hit hard by rising interest rates. In addition, consumers feel their purchasing power is being eroded by persistently high inflation, resulting in less purchases. ” [Food, Beverage & Tobacco Products]
- “Our forecast for the first quarter remains strong, but orders for the fourth quarter were lower than expected, indicating a slowdown in customer demand. Not sure if it’s an inventory adjustment. ” [Fabricated Metal Products]
- “There was an overall slowdown in business at the end of the third quarter. In terms of capital equipment additions, our customers were only buying what they needed for their will not add.” [Machinery]
- “The market is softening further. Today’s economic uncertainty has made clients reluctant to provide long-term forecasts.” [Electrical Equipment, Appliances & Components]
- “Business performance continues to be strong, with both sales and profits exceeding expectations. Reservations fell short of expectations, but were within expectations due to fewer business days and the summer vacation.” [Miscellaneous Manufacturing]
- “Manufacturing performance continues to be weak and weak market prices are making it difficult to sustain profits. On the positive side, workers are showing a keen interest in hiring.. Rising energy and fuel prices are a concern for us. ” [Paper Products]
- “Business is starting to slowly improve. While still well below 2022 levels, The ‘major inventory rebalancing’ appears to be finally happening” [Plastics & Rubber Products]
- “Auto sales remain strong as the National Auto Workers Union strikes Ford, General Motors, and Stellantis. Staffing shortages have reduced operational efficiencies Orders continue to be strong and on track for 2022.” [Primary Metals]
- “[Federal Reserve]measures to raise borrowing costs have dampened demand for residential investment. Recently, this slowdown has plateaued somewhat and demand has stabilized. The outlook for 2024 remains uncertain, We remain cautious about building inventory” [Wood Products]
The stock indicator is interesting, hitting new lows.
The manufacturing industry has experienced prolonged economic downturns, often referred to as recessions. However, there are some signs of improvement, or “green shoots,” in this area. Nonetheless, there are concerns that these positive trends could be disrupted in the coming months due to possible auto workers’ strikes.
The prospect of such a strike could create uncertainty in the manufacturing industry and disrupt production, supply chains and overall economic stability. This uncertainty can show up in economic surveys, making it difficult to grasp the true state of manufacturing in the near future.
Regarding the reaction of the bond market to this situation, bond prices seem to be falling (selling). One factor contributing to this drop is the reported rise in prices paid within the manufacturing sector. This may not come as a surprise, especially considering the recent surge in energy prices. Rising input costs in manufacturing could squeeze profit margins and contribute to inflationary concerns across the economy.
