US ISM Manufacturing: A slower pace of expansion, but there are some positives – Wells Fargo

Data released on Monday from the US manufacturing sector came in below expectations. The July ISM report tells us the manufacturing expansion continues to be limited by supply-chain issues, explained analysts at Wells Fargo. 

Key Quotes: 

“The ISM index came in at 59.5, the first sub-60 headline reading since January. The outcome was short of a consensus expectation for 61.0. The news was mixed and while supply-chain dynamics are a long long way from returning to normal there were a couple signals of improvement.”

“One unalloyed positive was the fact that the employment component crossed back into expansion, rising to 52.9 in July from 49.9 in June. Comments continue to point to the difficulty finding labor, but this is a welcome step in the right direction and suggests at least some easing in labor constraints.”

“Similarly, easing in input costs growth gives some indication that demand and supply is tippy-toeing back toward balance, but here too, the net share of businesses reporting higher input costs suggests businesses are not seeing much relief yet.”

“Supply issues are not just a concern for the manufacturing sector at these extremes either. The nearly 30-year high in core CPI has been underpinned by surging goods inflation, while the disappointing pace of Q2 GDP was tied in no small part to businesses further drawing down already scant inventories. No surprise then that the question of "When will these supply pressures begin to ease?" is at the forefront of the minds of business owners, investors, policymakers and consumers alike.”