Economic activity in the manufacturing sector contracted in July for the fourth consecutive month and the 20th time in the last 21 months, according to the Institute for Supply Management (ISM) Manufacturing Report On Business.

The report was issued by Timothy R. Fiore, CPSM, chair of the ISM manufacturing business survey committee.

“The manufacturing PMI registered 46.8% in July, down 1.7 percentage points from the 48.5% recorded in June. The overall economy continued in expansion for the 51st month after one month of contraction in April 2020. (A manufacturing PMI above 42.5%, over a period of time, generally indicates an expansion of the overall economy.) The new orders index remained in contraction territory, registering 47.4%, 1.9 percentage points lower than the 49.3% recorded in June,” Fiore said. “The July reading of the production index (45.9%) is 2.6 percentage points lower than June’s figure of 48.5%. The prices index registered 52.9%, up 0.8 percentage point compared to the reading of 52.1% in June. The backlog of orders index registered 41.7%, equaling its June reading. The employment index registered 43.4%, down 5.9 percentage points from June’s figure of 49.3%.”

“The supplier deliveries index indicated slowing deliveries, registering 52.6%, 2.8 percentage points higher than the 49.8% recorded in June. (Supplier deliveries is the only ISM Report On Business index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The inventories index registered 44.5%, down 0.9 percentage point compared to June’s reading of 45.4%,” Fiore said. “The new export orders index reading of 49% is 0.2 percentage point higher than the 48.8% registered in June. The imports index remained in contraction territory in July, registering 48.6%, 0.1 percentage point higher than the 48.5% reported in June.”

“U.S. manufacturing activity entered deeper into contraction. Demand was weak again, output declined, and inputs stayed generally accommodative. Demand slowing was reflected by the (1) new orders index dropping further into contraction, (2) new export orders index continuing in contraction, (3) backlog of orders index remaining in strong contraction territory, and (4) customers’ inventories index moving lower to the higher end of ‘too low,’” Fiore said. “Output (measured by the production and employment indexes) declined compared to June, with a combined 8.5-percentage point downward impact on the manufacturing PMI calculation. Panelists’ companies reduced production levels month over month as head-count reductions continued in July. Inputs — defined as supplier deliveries, inventories, prices and imports — generally continued to accommodate future demand growth.”

“Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and other conditions. Production execution was down compared to June, likely adding to revenue declines, putting additional pressure on profitability. Suppliers continue to have capacity, with lead times improving and shortages not as severe,” Fiore said. “Eighty-six percent of manufacturing gross domestic product (GDP) contracted in July, up from 62% in June. More concerning: The share of sector GDP registering a composite PMI calculation at or below 45% (a good barometer of overall manufacturing weakness) was 53% in July, 39 percentage points higher than the 14% reported in June. Notably, all six of the largest manufacturing industries — machinery; transportation equipment; fabricated metal products; food, beverage and tobacco products; chemical products; and computer and electronic products — contracted in July.”

The five manufacturing industries reporting growth in July are:

• Printing and related support activities
• Petroleum and coal products
• Miscellaneous manufacturing
• Furniture and related products
• Nonmetallic mineral products

The 11 industries reporting contraction in July — in the following order — are:

• Primary metals
• Plastics and rubber products
• Machinery
• Electrical equipment
• Appliances and components
• Transportation equipment
• Fabricated metal products
• Food, beverage and tobacco products
• Wood products
• Paper products
• Chemical products
• Computer & Electronic Products