The ISM’s manufacturing purchasing managers index, which was released ahead of its normal 10am Eastern Time schedule, fell to 52.7 in July from 53.5 in June.
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The slight drop brought the index to its lowest level since April this year, although the decline was driven by components that analysts believe to be less indicative of future growth. The reading was shy of expectations that the pace would remain unchanged at 53.5, according to a Reuters poll of economists. Any reading over 50 shows that services firms are expanding.
The Commerce Department also released a separate report showing a much smaller than expected increase in construction spending in the month of June.
Oil prices fell 21% in July and were off nearly 2% on August 3 alone, as an oversupply in the market continued to drive prices lower. The most positive number on the page is “new orders” at 56.5, which is a new high for the year.
While overall manufacturing growth was up for the 31st consecutive month, there were external pressures that saw the index slide, said Bradley Holcomb, chairman of the ISM Manufacturing Business Survey Committee.
He said this and other reports is unlikely to keep Federal Reserve policymakers from raising interest rates on the back of the weak manufacturing performance, focusing instead on the steady improvement in the labor market and robust service sector growth which have been signalled at the start of third quarter. The index of activity in the sector is expected to tick up to 56.2 in July from 56.0 in June.
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ISM manufacturing data has been holding steady in the low 50s range, which implies very modest growth in a sector that has been dealing with weakness from oil and gas and from the strong dollar hurting exports. Production volumes expanded at the sharpest pace for three months, with survey respondents generally citing improved domestic demand conditions. Economists surveyed by The Wall Street Journal think the US economy added about 215,000 jobs last month, down from 223,000 the prior month.
