US factory activity slows

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WASHINGTON: US manufacturing activity continued to expand in July but at a slightly slower pace than in June, with declines in new orders, output and employment, the Institute for Supply Management said Tuesday.

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Despite the slightly slower pace of growth, there were many signs of strength in the survey, and the sector shows “no signs of slowing in the near future,” Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee, told reporters.

The closely-watched ISM purchasing managers index slipped 1.5 points to 56.3, slightly better than analysts were expecting, but even amid the slowdown the ISM survey showed 15 of the 18 industries reporting growth.

While new orders slowed sharply, with the index dropping 3.1 points, and employment fell two points — the first decline after nine straight increases — Fiore attributed those dips at least partly to seasonal factors.

“Order placements remained strong across most industry sectors in spite of seasonality factors including changes in demand and vacation periods,” Fiore said in a statement.

Still, one comment in the survey warned that “labor shortages are pretty universal, leading to longer lead times through the supply chain.”

Output growth also dipped from the prior month with the production index down 1.8 points to a still-strong 60.5, the report said. Anything above 50 indicates growth.

“Though slower than in June, manufacturing growth in July was modestly faster than the average for the second quarter,” said John Ryding of RDQ Economics.

But Jim O’Sullivan of High Frequency Economics was more skeptical, saying government data on manufacturing “has not picked up as much as implied by the ISM data.”

Fiore told reporters supply constraints could be impacting production, adding that transportation delays could indicate “a strong demand to move product.”

In contrast to recent weak inflation numbers — including a report earlier Tuesday showing the Federal Reserve’s preferred price measure slowed to 1.4 percent in the latest 12 months, further retreating from the two percent target — the ISM price index jumped seven points to 62 percent.

Fiore noted a return of higher prices for copper, steel and electronic components, as well as signs of rising food prices, notably wheat and corn.

The survey showed 14 of the 18 industries reported paying higher prices in July, which should eventually should lead to an uptick in consumer prices.

“Companies aren’t going to take price increases on their own,” Fiore said.

The Federal Reserve has been widely expected to raise the benchmark interest rate a third time later this year, but some economists have been pushing back against that certainty given the very tepid inflation rate and absence of wage pressures.

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