Weekly Market Uncertainty
The end of last week marked one of the worst weeks in quite some time only to rebound
Monday morning. What caused this rebound and why are we experiencing this uncertainty and volatility? A number of things lead us to this moment of uncertainty but we are going to talk about what is notably causing this swing, which is the ISM manufacturing and Service Reports that came out Friday and Monday.
Manufacturing PMI
As for the ISM Manufacturing Report, economic activity in the U.S. manufacturing sector
continued its contraction for the fourth consecutive month. The Manufacturing PMI® registered at 46.8%, indicating a deeper contraction compared to June’s 48.5%. This marks a persistent decline in manufacturing activity. Conversely, the services sector showed signs of recovery, moving back into expansion territory after a dip in June, as highlighted in the Services ISM® Report on Business®.
Key Indexes and Report
- New Orders Index: At 47.4%, this index showed a further decline from June’s 49.3%, marking continued weak demand.
- Production Index: Declined to 45.9%, a 2.6 percentage point drop from June’s 48.5%,
reflecting reduced manufacturing output.
- Employment Index: Sharply decreased to 43.4%, down from June’s 49.3%, indicating
significant reductions in manufacturing employment.
- Supplier Deliveries Index: Rose to 52.6%, up from June’s 49.8%, signaling slower supplier
deliveries as demand remains subdued.
- Inventories Index: Registered 44.5%, a slight decrease from June’s 45.4%, showing continued contraction in raw materials inventories.
- Prices Index: Increased to 52.9% from 52.1% in June, indicating rising input costs.
- Backlog of Orders Index: Steady at 41.7%, remaining in contraction.
- New Export Orders Index: Marginally improved to 49.0% from 48.8%, but still in contraction.
- Imports Index: Slightly up to 48.6% from June’s 48.5%, continuing to indicate reduced import volumes.
Services PMI
Despite the contraction in manufacturing, the broader economy shows overall expansion
as the PMI® remains above the 42.5% threshold. The Services PMI® climbed to 51.4% from
June’s 48.8%, indicating a return to growth in the services sector. Growth was seen in industries like Printing & Related Support Activities, Petroleum & Coal Products, Miscellaneous Manufacturing, Furniture & Related Products, and Nonmetallic Mineral Products. However, Primary Metals, Plastics & Rubber Products, Machinery, and Electrical Equipment, among others, experienced contraction. The general sentiment highlights weakening demand, inventory adjustments, and significant supply chain challenges, with geopolitical concerns, shifting consumer behavior, and economic uncertainties influencing business decisions and forecasting.
Key Indexes and Report
- Business Activity Index: Rose sharply to 54.5%, indicating robust growth in business activities.
- New Orders Index: Increased to 52.4% from June’s 47.3%, showing a significant rebound in
new orders.
- Employment Index: Improved to 51.1% from 46.1%, indicating growth in employment within
the services sector.
- Supplier Deliveries Index: Fell to 47.6% from June’s 52.2%, indicating faster supplier
deliveries.
- Prices Index: Increased to 57.0% from 56.3%, reflecting ongoing inflationary pressures.
- Inventories Index: Slightly contracted at 49.8%, up from June’s 42.9%.
- Backlog of Orders Index: Returned to expansion at 50.6%, up from 44.0% in June.
Commentary
The services sector continues to demonstrate resilience, with 10 out of 18 industries
reporting growth, highlighting its significant role in the U.S. economy. Growth was seen in Arts, Entertainment & Recreation, Accommodation & Food Services, and Mining, while Agriculture, Forestry, Fishing & Hunting, Real Estate, Rental & Leasing, and Wholesale Trade reported decreases. The general sentiment in the services sector indicates stability and gradual expansion, though concerns about increased costs and economic uncertainties due to the upcoming presidential election persist. High interest rates and inflation remain key challenges, affecting consumer demand and business investment decisions.
Conclusion: Contrasting Economic Conditions
The contrasting trends between the manufacturing and services sectors reflect varied
economic conditions across different parts of the economy. While manufacturing struggles with weak demand, declining production, and employment cuts, the services sector shows signs of recovery and growth. These reports suggest that while the overall economy continues to expand, significant challenges remain, particularly in the manufacturing sector, influenced by federal monetary policy, geopolitical uncertainties, and shifting consumer behaviors.
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