Manufacturing purchases failed to meet analyst expectations according to the July 2019 Manufacturing Purchasing Manager Index from the Institute of Supply Management. ISM reports that the index fell from 51.7% in June to 51.2% in July. Analysts had predicted a rise to 52%.
The manufacturing sector accounts for 12% of the US economy. July’s index is over 50%, indicating continued expansion, but economists expected better results.
This is a three-year low for the index, and it’s most likely caused by the negative effects of the ongoing trade war with China. Related data points show that the number of people filing for unemployment benefits rose last week and that construction spending fell in June. Investment in private construction projects fell to its lowest level in one-and-a-half years.
This slowdown in factory activity and the simultaneous weak business-investment stats were reflected in the Fed’s recent interest rate cuts. The US central bank introduced cuts on Wednesday, for the first time since the Great Recession in 2008, to protect the economy from the threat of the current trade war and decelerating global growth. Businesses are hurting because of disruptions to supply chains caused by import tariffs, and this is slowing down manufacturing.
Inventory overstocks contribute to the problem because businesses are placing fewer orders with manufacturers. The crash of Boeing’s MAX 737 planes in March is also generating tension in the market. Boeing has lost a lot of customers and production has slowed to a crawl.
New orders increased and showed a reading of 50.8%, a slight bounce compared to the last month’s reading that measured 50.0%. The Institute for Supply’s survey also showed that factory employment dropped to 51.7% from 54.5% in June.