US manufacturing struggles with ninth month of contraction

The weakness comes as demand for goods took a hit from shifting consumption towards services, while the Federal Reserve's interest rate hikes in the past year also impacted business spending. (Representative Image)

The US manufacturing sector saw activity contract for a ninth straight month in July, survey data showed Tuesday, as new orders struggled on cooling demand while companies reduced production and headcount.

The weakness comes as demand for goods took a hit from shifting consumption towards services, while the Federal Reserve's interest rate hikes in the past year also impacted business spending.

To rein in surging inflation, the central bank lifted rates rapidly to ease demand, and its actions are rippling through the world's biggest economy.

The Institute for Supply Management's (ISM) manufacturing index came in at 46.4 percent last month, inching up from 46.0 percent in June -- but this was still firmly below the 50-percent threshold indicating growth.

"Demand remains weak but marginally better compared to June, production slowed due to lack of work, and suppliers continue to have capacity," said ISM survey chief Timothy Fiore.

"There are signs of more employment reduction actions in the near term to better match production output," he added.

But with manufacturing accounting for around nine percent of payrolls, falling employment is unlikely to drag overall numbers, said economist Kieran Clancy of Pantheon Macroeconomics.

- 'Tougher times ahead' -

The headline ISM figure however signals contraction "for the longest stretch since the global financial crisis," said economist Oren Klachkin of Oxford Economics.

"We see tougher times ahead," he said.

He added that big-ticket and credit-sensitive goods stand to suffer the biggest losses in a mild recession, expected around end-2023.

For July, ISM data showed that the new orders and production indexes both improved slightly but remained in contraction, while employment plunged.

Two manufacturing industries -- petroleum and coal products, as well as furniture and related products -- reported growth while 16 others shrank, ISM said.

"Sales in our industry are extremely slow entering into the second half of the year, and no upturn is expected until at least the fourth quarter," said a survey respondent from the chemical products sector.

Another respondent noted that semiconductor trade restrictions against China have "negatively impacted" its North America industrial business.

Meanwhile, a "widely anticipated boost from China's reopening has amounted to very little," noted Clancy of Pantheon Macroeconomics.