Manufacturers contract for 8th month in a row, ISM finds, and are weakest since the pandemic lockdowns

Numbers below 50% signal contraction in the industrial side of the economy. The index has been negative for eight months in a row, a bout of weakness last experienced during the 2007-2009 Great Recession.

Economists polled by the Wall Street Journal had forecast the index to register 47.3% in June.

Key details:

• The index of new orders rose 3.0 points to 45.6%, but it was still close to recession levels.

• The production barometer fell 4.4 points to 46.7%, also the lowest level since May 2020.

• The employment gauge declined 3.3 points to 48.1%.

• The prices index, a measure of inflation, dropped to 41.8% from 44.5%. That puts it back to prerecession levels before a surge in prices pushed inflation to a 40-year high in 2022.

Big picture: Manufacturers have responded to slack demand by reducing inventories and slowing production.

“Customer orders have definitely slowed down,” said an executive at a chemical maker. “Our company thought the second half of 2023 would be better than the first half, but this doesn’t seem to be the case.”

The industrial side of the economy is unlikely to rebound until the Federal Reserve stops raising interest rates. The Fed is primed to raise rates a few more times this year to help stamp out high inflation.

Higher borrowing costs dissuade consumers and businesses from making expensive purchases.

The strength of the economy, meanwhile, has been in services such as travel, recreation and leisure. A similar ISM survey of service companies, due Thursday, has shown a lot more strength.

Looking ahead: “The fact there is no real demand in new-order levels is a concern,” said Timothy Fiore, chairman of the survey. “Without demand coming back, we are going to continue on this path.”

Market reaction: The Dow Jones Industrial Average
DJIA,
-0.05%
and S&P 500
SPX,
-0.04%
fell slightly in Monday trades.