The U.S. manufacturing barometer declined more than anticipated in July, marking the fourth consecutive month of contraction in the sector and the worst one since December 2023, according to the Institute for Supply Management (ISM).

The struggles in the manufacturing sector continued to contrast with the health of the overall economy, which is experiencing expansionary conditions driven by the growth in the services sector. July marks the 20th month of contraction in the U.S. manufacturing sector over the past 21 months.

July ISM Manufacturing PMI Report: Key Highlights

  • The ISM Manufacturing PMI Index tumbled to 46.8% in July, a decrease of 1.7 percentage points from June's 48.5%, falling short of the economist consensus estimate of 48.8% as reported by TradingEconomics.
  • The New Orders Index remained in contraction at 47.4%, down 1.9 percentage points from June's 49.3%.
  • The Production Index registered at 45.9%, dropping 2.6 percentage points from the previous month's 48.5%.
  • The Prices Index was 52.9%, a slight increase of 0.8 percentage points from June's 52.1%.
  • The Backlog of Orders Index held steady at 41.7%.
  • The Employment Index fell to 43.4%, a decline of 5.9 percentage points from last month's 49.3%.
  • The New Export Orders Index decreased to 49%, up 0.2 percentage points from June's 48.8%.
Deeper Manufacturing Contraction

"U.S. manufacturing activity entered deeper into contraction. Demand was weak again, output declined, and inputs stayed generally accommodative." said Timothy Fiore, chair of the Institute for Supply Management.

The economist highlighted a drop in production levels amid broad-based employment reductions in July.

"Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and other conditions," he added.

Fiore indicated that production execution decreased compared to June, which may have contributed to declines in revenue and increased pressure on profitability. Reports suggest that suppliers are maintaining sufficient capacity, with indications that lead times are improving and shortages are becoming less severe.

Market Reactions

The disappointing manufacturing activity survey for July pushed the U.S. dollar index (DXY) lower, with the Invesco DB USD Bullish Fund (UUP  ) cutting early session gains to 0.1%.

Treasuries rallied as yields continued to fall across the board, extending Thursday's drops following the dovish Powell's press conference. The iShares 20+ Year Treasury Bond ETF (TLT  ) was 1% higher.

The stock market experienced a mixed session. While the Nasdaq 100 and the S&P 500 indices both rose 0.4%, blue chips fell 0.3% and the iShares Russell 2000 ETF (IWM  ) tumbled 1%, with the latter extending declines after the ISM report.