Key facts
- U.S. manufacturing activity eased in August, with the ISM manufacturing PMI falling to 54.6 from 55.6 in July.
- New orders and factory employment measures both declined in August.
- Supplier deliveries slowed, indicating persistent supply chain strains.
- Prices paid for inputs remained elevated, unchanged at 71.1.
- Fed Chairman Kevin Warsh indicated further action may be needed if inflation does not fall to the 2% target.
- Markets are pricing in a 70% chance of a 25 basis point Federal Reserve rate hike in September.
U.S. manufacturing activity experienced a slowdown in August, following a period of strong growth in the previous month. The Institute for Supply Management (ISM) reported that its manufacturing Purchasing Managers' Index (PMI) decreased to 54.6 in August from 55.6 in July. This figure, while indicating continued expansion in the sector as it remains above the 50 threshold, fell short of economists' forecasts of 55.2 and suggests a cooling in momentum.
The decline was partly attributed to a softening in new orders, with the relevant ISM measure falling to 53.7 from 56.7 in July. Additionally, the factory employment index dropped to 51.2, down from 52.8 in July. Despite the overall slowdown, export orders saw a slight increase.
Persistent supply chain issues continued to pressure input prices. The supplier deliveries index rose to 59.3, indicating longer delivery times for materials. Consequently, the prices paid index remained unchanged at a high 71.1, suggesting that inflation at the factory gate is likely to persist above the Federal Reserve's 2% target.
In response to ongoing inflation concerns, Fed Chairman Kevin Warsh stated that the central bank would need to take further action if confidence in inflation falling to the target is not achieved. Financial markets are currently pricing in approximately a 70% probability that the Federal Reserve will implement a 25 basis point interest rate hike at its upcoming meeting.