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The U.S. manufacturing sector exhibited significant signs of weakness in various reports released on Monday. However, one analyst remains cautiously optimistic, suggesting that the situation may be improving. The Institute for Supply Management reported an index of 46.1 for June, marking its weakest reading since May 2020.
July 3 (UPI) — The latest indices indicate a decline in U.S. manufacturing activity due to a combination of efforts to clear existing inventories and a decrease in new orders.
“The health of the U.S. manufacturing sector took a sharp turn for the worse in June, adding to concerns over the economy potentially slipping into recession in the second half of the year,” stated Chris Williamson, the chief business economist at S&P Global Market Intelligence. He also noted that the severe drop in demand for goods, with new orders at one of their steepest declines since the global financial crisis of 2009, contributed to the darkening outlook.
A recent survey by the Federal Reserve Bank of Dallas revealed that manufacturers are still grappling with inflationary pressures. Respondents reported an increase in the cost of new materials, parts, and shipping, while spending from end users continued to decline.
The Purchasing Managers’ Index for the manufacturing sector, maintained by S&P, fell to 46.3 in June from 48.4 in May. A reading below 50 indicates a contraction, and June’s figure was the lowest of the year.
“Manufacturing performance has deteriorated in seven of the last eight months,” according to S&P’s report.
Manufacturing plays a vital role in the U.S. economy, and while signs of an impending recession are currently limited, there are concerns surrounding its overall health. The Bureau of Economic Analysis recently revised its GDP forecast, indicating 2% growth in the first quarter following 2.6% growth in the fourth quarter of the previous year.
Additionally, the Institute for Supply Management reported its manufacturing index for June as 46.1, the weakest reading since May 2020. Among the manufacturing industries, only transportation equipment reported growth.
Ed Moya, a senior market analyst with New York brokerage OANDA, suggested a potential silver lining in the increase of new orders for manufactured goods, although the index remained below 50 in June.
“The dollar tumbled following the ISM report, which might suggest that manufacturing activity is nearing a bottom,” he explained.
On Monday, stock markets remained relatively stable with light trading ahead of the July 4 holiday.
