US: June ISM manufacturing falls to 52.8

The ISM manufacturing index fell to 52.8 from 53 in June, showing a more optimistic outlook than expected. Thus, the headline index remains in the expansion zone, indicating a better-than-anticipated growth outlook. The most important signal brought by the data is that the growth momentum has cooled, but the economy is not in recession yet. Of course, the momentum of such subdata and explanatory variables is important in an environment where the actual definition of a recession is controversial. If the lower breakdowns do not indicate a problematic situation, the two-quarter recession of the economy will not be a scenario on its own.

If we look at the sub-items; new orders fell from 49.2 to 48, reflecting the deterioration in demand conditions, which is not positive for the next period growth projection as it will indicate a trend that will also reduce production. The price index, on the other hand, points to a seriously easing tendency, with a decrease from 78.5 to 60, partly due to the sharp decline in commodity prices in June. If oil stays around $100 or geopolitical risks layer, there is a possibility of an upside reaction again, but the current situation is breathtaking. There is a slight decrease in production from 54.9 to 53.5, while employment is still in the contraction zone, rising from 47.3 to 49.9 and approaching the breakeven point.

All six of the largest industries reported “moderate to strong” growth last month, which doesn’t look like a sign of an impending recession. Respondents also point to better supply chain performance. Whether this long-held optimism will continue or be broken in the July edition contains more important details than the headline’s nearing 50-year decline. Better supply chain performance will of course soften the decline and positively affect production. However, demand-side indicators are worsening and this is not a good signal. New orders fell below the dividing line between growth and contraction for the first time since May 2020, and the contraction there has deepened. Supplier deliveries may improve, but the picture changes if escalating China-Taiwan tensions this week cause a blockchain-induced chip crisis in the future.

ISM PMI indices show that economic activity continues to expand. For the Fed, the employment data coming later this week will include important details in terms of recession projections and inflation factors.

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