WASHINGTON, Sept 1 (Reuters) – U.S. manufacturing activity eased in August after strong growth in the prior month, with new orders slowing and input prices remaining high amid persistent supply-chain strains.
The Institute for Supply Management said on Tuesday its manufacturing PMI fell to a still-elevated 54.6 last month from 55.6 in July, which was the highest reading since May 2022. Economists polled by Reuters had forecast the PMI would drop to 55.2. The PMI has held above the 50 threshold this year, indicating growth in the manufacturing sector.
Some of the retreat last month could be the result of the fading boost from businesses front-loading orders to avoid higher prices and shortages stemming from the six-month U.S.-Israeli war with Iran.
Manufacturing, which accounts for about 9.4% of the economy, remains supported by an artificial intelligence buildout. A further lift is expected from replenishment of business inventories, which have declined for five straight quarters, the longest such stretch since the Great Recession.
The ISM survey’s new orders measure slipped to 53.7 last month from 56.7 in July. The stock of unfinished work decreased, though export orders edged up. A measure of factory employment fell to 51.2 after rebounding in July to 52.8, the highest level since August 2022.
This measure has, however, been a poor predictor of manufacturing employment in the government’s monthly employment report. A Reuters survey of economists expects factory employment to have remained weak in August, though overall nonfarm payrolls are seen rebounding after a surprise decline in July. The government will publish the report on Friday.
The pullback in orders did not ease the pressure on supply chains. The survey’s supplier deliveries index increased to 59.3 from 58.9 in July. A reading above 50 indicates slower deliveries. The supply constraints meant inflation at the factory gate remained high last month.
The survey’s gauge of prices paid for inputs was unchanged at 71.1, suggesting inflation could stay above the Federal Reserve’s 2% target for a while.
Fed Chairman Kevin Warsh said on Friday the U.S. central bank will “have work to do” if policymakers don’t get the confidence they need that inflation is falling to the 2% target.
Financial markets are pricing in a roughly 70% chance that the Fed will raise its benchmark overnight interest rate by 25 basis points at its September 15-16 meeting, according to CME Group’s FedWatch tool.
(Reporting by Lucia Mutikani; Editing by Paul Simao)
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