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Growth in the US manufacturing sector held steady in August as demand rebounded and employment improved amid high inflation and fears of a coming recession.
The Institute for Supply Management said its factory activity tracking index was unchanged at 52.8 in August, beating economists’ forecast for a reading of 52. Any reading above 50 indicates the sector is in expansion.
The employment index rose for the first time since April and reported a reading of 54.2 from 49.9 in July as a higher proportion of businesses surveyed said employment rates hiring and turnover had declined in August.
After contracting for the past two months, new orders rose in August to 51.3, signaling that demand is still strong in an inflationary environment. It was also reported that commodity prices rose at a slower pace in August.
“Sentiment remained bullish on demand, with five positive growth comments for every cautious comment,” said Timothy Fiore, chairman of the ISM Manufacturing Survey Committee. “Panelists continue to express unease with a slowing economy, with 18% of comments citing concerns about the shrinking order book.”
Production and inventories slowed to a reading of 50.4 and 53.1, respectively. Fiore said he expects production to increase in September as departures — a measure of employees leaving jobs — ease and supplier deliveries improve.
Nevertheless, the macroeconomic context could still weigh on factory activity for the rest of the year. Oren Klachkin, chief US economist at Oxford Economics, expects the final months of 2022 to be “quite challenging” for manufacturers.
“Weak domestic demand and recessionary concerns will weigh on growth while supply chain challenges will continue to bite,” Klachkin said. “Cost pressures will remain quite elevated and the Fed’s hawkish policy will put upward pressure on interest rates.”