US manufacturing ISM slips into contraction terrritory

Growth in the US economy’s manufacturing sector slipped a lot more than expected in August, moving into contraction territory, according to figures from the Institute for Supply Management (ISM).

The ISM index of national factory activity fell to 49.4 from 52.6 in July, missing expectations for a reading of 52.0.

Meanwhile, the employment index fell 1.1 percentage points from the July reading to 48.3, while the new orders index fell to 49.1 from 56.9. The 50 mark separates contraction from expansion.

The production index slid to 49.6 from 55.4, while the prices paid index edged down to 53.0 from 55.0.

Spreadex analyst Connor Campbell said the ISM figures was “a bit of a shock” and “the worst figure in more than half a year", potentially damaging the case of those in the Federal Reserve looking for a rate hike in September.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the figures were “unsustainably horrible”.

“We pulled our forecast down to 51 after the Chicago PMI yesterday but that wasn't far enough. 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.

“Looking ahead, the strength of China’s PMI and the revival of mining capex suggests that the ISM will not remain depressed for long, and we think this reading is mostly a fluke. But it is unnerving after a run of better numbers, and it represents another reason why the Fed is likely to leave rates on hold this month.”