Headline US manufacturing activity data for August 2024 came in lower than expected at 47.2 (market consensus provided by the Reuters poll: 47.5). However, it was still better than the prior reading in July at 46.8.

In light of the latest report, US manufacturing activity has contracted for a fifth consecutive month (a reading south of 50.00 indicates contraction) and marks the 21^st month of contraction in the last 22 months. In contrast, service activity continues to drive the economy.

The softer-than-expected reading raises the chances that the US Federal Reserve may opt for a bulkier 50 basis point rate reduction at the September meeting. There was a moderate dovish repricing following the release; markets are now pricing in -34 basis points of easing for September and -102 basis points for the entire year.

The market reaction saw US stocks trade lower, with the S&P 500 down -1.5% as of writing. According to the US Dollar Index, the US dollar is up +0.2%, testing the mettle of daily resistance around 101.78, while US Treasury yields trade lower across the curve, along with spot gold (XAU/USD) and WTI oil prices down -0.5% and nearly -4.5%, respectively (the latter is hitting levels not seen since the beginning of this year).

The Institute for Supply Management Chair, Timothy R. Fiore, commented:

• ‘While still in contraction territory, U.S. manufacturing activity contracted slower compared to last month. Demand continues to be weak, output declined, and inputs stayed accommodative’.

• ‘A further downward lurch in the PMI points to the manufacturing sector acting as an increased drag on the economy midway through the third quarter. Forward-looking indicators suggest this drag could intensify in the coming months’.

• ‘Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and election uncertainty’.

Report Internals:

• The employment index improved in August to 46.0 from 43.4 in July.

• The prices paid component jumped to 54.0 in August, up from 52.9 in July, and also comfortably bettering economists’ forecasts of 52.5.

• The new orders index, however, was disappointing, down 44.6 in August from 47.4 in July, emphasising the softness seen in the August S&P Global print, which came in at 48.0 (from 49.6 in July) and was the report’s worst release in seven months.

Respondents:

Source: Institute for Supply Management

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