ISM Manufacturing Index: The Institute for Supply Management’s manufacturing index moved down 0.9% (m/m) to 46.4 for July 2023; this value is weaker than the forecast of 50. The new orders sub-index scored at 47.3. The reading pointed to a ninth straight month of contraction in factory activity, as demand remains weak, production slowed due to lack of work, and suppliers continue to have capacity.

The ISM manufacturing index is based on surveys of 300 purchasing managers in 17 industries. The survey is a diffusion index calculated as a percent of responses. A value of 50 is neutral, while less than 50 denotes contracting manufacturing activity and greater than 50 denotes expanding activity.

Figure 1 breaks down the composite index and sub-indexes. The backlogs sub-index was 42.8 this month, while the inventories sub-index was 46.1.

The two manufacturing industries that reported growth in July are: Petroleum & Coal Products; and Furniture & Related Products. The 16 industries reporting contraction in July, in the following order, are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Paper Products; Textile Mills; Wood Products; Computer & Electronic Products; Chemical Products; Primary Metals; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Miscellaneous Manufacturing; Fabricated Metal Products; Transportation Equipment; Nonmetallic Mineral Products; and Machinery.

“Stable demand for the next four to six months, but longer-term uncertainty. While customer growth is projected, we cannot point to fundamentals that sustain it. Supply conditions are similar to pre-pandemic, except for energy and raw input costs. Logistics costs have settled, transit times continue to shorten and capacities at most suppliers are sufficient.” [Fabricated Metal Products]

At Gerdau, we closely monitor the ISM manufacturing index since it is an excellent barometer of the present strength, as well as a window on the likely short-run future, of U.S. manufacturing.