Activity in the US manufacturing sector isn't contracting but it is showing its slowest rate of growth of the recovery, according to Markit Economics' flash report for July where the composite index slowed to 51.8 vs June's revised 52.5. New orders are still above 50 though they are down nearly 2 points to 51.9. Weakness in new export orders, at 48.2 and below 50 for a second straight month, is a key factor and no doubt reflects weakness in Europe and possibly Asia as well. Total backlog is also in contraction for a second straight month, at 48.7 vs 49.6 in June.
Output is still showing a monthly gain but at a slower rate than June, and inventories are building though only slightly. Yet inventory build may become a concern if orders don't pick up. Prices are contracting, but only slightly, which is another reflection of generally soft demand. One positive is employment which at 52.9 is up 1 tenth though future strength for this reading is in doubt given, again, the weakness in orders.
This report isn't signaling immediate danger for the manufacturing sector unlike other readings including last month's ISM report and this month's regional reports issued last week by the New York and Philly Feds. Later this morning at 10:00 a.m. ET on the calendar, the Richmond Fed will post its regional results for July.
Based on monthly questionnaire surveys of selected companies, the Purchasing Managers' Manufacturing Index (PMI) offers an advance indication on month-to-month activity in the private sector economy by tracking changes in variables such as output, new orders, stock levels, employment and prices across manufacturing industries. The flash index, usually released about a week before the final, gives a preliminary reading of conditions for the current month.
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