It was the first time since February that the index read below 50, the border between expansion and contraction. The key new orders index dropped sharply to 49.1 in August from a solid 56.9 in July. Auto sales have also levelled off this year after reaching record levels in 2015.
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A measure of employment fell to 48.3, the ISM said, its second straight month of decline.
After sliding from ¥104.00 overnight on widespread dollar selling, due to a downbeat report on USA manufacturing-sector activity, the greenback was hovering in a tight range between ¥103.10-¥103.70 ahead of the closely-monitored jobs data. That is a sign manufacturers are laying off workers. The headline was pulled down by unusually steep declines in the new orders and production indexes, down 7.8 points and 5.8 points respectively.
A plastics and rubber products respondent said low unemployment was making it hard to find production employees, leading to a lot of overtime. Growth of 250,000 jobs or more could lead the Fed to raise interest rates later this month, according to Wall Street analysts.
The drop in orders likely reflects cutbacks by US businesses and consumers, which could prove temporary.
“I don’t see any reason why it wouldn’t tick back up”, said Bradley Holcomb, chair of the ISM’s survey committee.
While the report’s numbers were not positive, respondents to ISM’s survey did express some optimism tied to specific industry.
Consumer resilience has been mainly driving the US economic growth in the past year, as shown by the solid personal income and consumption report of July released recently.
Orders for long-lasting manufactured goods, which includes industrial equipment, cars and appliances, also increased in July.
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It said nonfarm payrolls in the month have fallen short of market consensus for five years in a row, while the dollar had declined in every year over the past five years.
