Trade tariffs take their toll on July ISM manufacturing PMI
The rate of expansion in US factory sector activity slowed a tad more-than-expected in July amid widespread concerns regarding the impact that tariffs will have on international trade.
Last month, the Institute for Supply Management's manufacturing sector Purchasing Managers' Index retreated from a print of 60.2 for June to 58.1 in July, its lowest level in 12 months, missing forecasts for a reading of 59.2.
"Respondents are again overwhelmingly concerned about how tariff-related activity, including reciprocal tariffs, will continue to affect their business," said Timothy Fiore, the chair of ISM's Manufacturing Business Survey Committee.
One of those respondents, from the Wood Products industry, said: "the so-called trade war is now taking its toll on business activity, resulting in substantial reductions to new export orders. China has all but stopped taking orders, causing inventories to build up in the U.S. Domestic business is steady. However, it is too small to carry the load that export markets have retreated from. As a result, we will be meeting as a corporation next week to recast our second-half sales and revenue projections."
Reflecting the above, a key subindex of new orders fell from 63.5 to 60.2, alongside a rise in a gauge tracking actual levels of output from 62.3 to 58.5, although the employment subindex did improve from 56.0 to 56.5.
A subindex of order backlogs also weakened, falling back from 60.1 to 54.7.
In parallel, inventories piled-up, with the corresponding subindex jumping from 50.8 to 53.3.
Prices paid on the other hand fell, with that subindex slipping from 76.8 to 73.2.
"The ISM index remains at a high level, consistent with decent growth and strong payrolls, but that will change if the relatively small tariffs imposed so far are followed by the $200B-worth of new levies now under consideration by the administration," said Pantheon Macroeconomics's Ian Shepherdson.
"Dumb policy hurts. Finally, note that the prices paid index dipped to a six-month low, due to the decline in oil prices; this will not change the upward trajectory of core PPI inflation."