For now, production is holding up with the component index rising to 54.9 from 54.2, but with
new orders contracting and the backlog of orders moderating (53.2 from 58.7) the direction of
travel isn't looking good. Employment was also very soft at 47.3 versus 49.6 last time.
Admittedly there are still a huge number of job vacancies in the sector, but such a poor figure
will draw the conclusion that companies are becoming more pessimistic on their prospects. The
ongoing weakness in the Chinese PMI doesn’t bode well for the activity outlook either given the
nature of global supply chains.
There are some positives on the inflation side with prices paid slowing for the third consecutive
month while supplier delivery times moderated, suggesting production bottlenecks are easing.
Nonetheless, this report is unlikely to improve the mood ahead of the weekend.
Slowdown worries have already been highlighted this week by the large downward revisions to
consumer spending data and the outright contraction in May and today’s manufacturing
numbers suggest that weakness is spreading to other parts of the economy. This won’t deter
the Fed from hiking aggressively in the near-term given their clear aim of getting inflation lower.
However, it could contribute to less aggressive action later this year and increase the chances
that the Fed ends up reversing course and starts cutting interest rates again in summer 2023.
- ING Economics
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