U.S. manufacturing activity slowed less than expected in July and there were signs that supply constraints are easing, with a measure of prices paid for inputs by factories falling to a two-year low, suggesting inflation has probably peaked, Reuters reported. While the Institute for Supply Management survey on Monday showed a measure of factor employment contracting for a third straight month, Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, noted that "companies continue to hire at strong rates, with few indications of layoffs, hiring freezes or headcount reduction through attrition." The better-than-expected ISM reading suggested that the economy was not in recession despite a decline in gross domestic product in the first half of the year. Businesses, however, are sitting on excess inventories after ordering too many goods because of worries about shortages, depressing new orders. "The post-pandemic inventory restocking cycle is winding down amid softening consumer goods demand," said Pooja Sriram, an economist at Barclays in New York. "This intensifies risks of a harder landing in the manufacturing sector later this year. That said, the overall PMI would still need to decline a fair bit to reach readings consistent with outright economic recession." The ISM's index of national factory activity dipped to 52.8 last month, the lowest reading since June 2020, when the sector was pulling out of a pandemic-induced slump. The PMI was at 53.0 in June. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the U.S. economy.
