Stocks drop as manufacturing activity slumps
Manufacturing investment and activity are slowing down ahead of a possible shift in the business cycle as the Federal Reserve weighs a cut in interest rates later this month.
S&P Global's Purchasing Managers’ Index (PMI) dropped to an eight-month low, coming in at 47.9 in August, down from 49.6 in July.
S&P reported production cuts for the first time since January.
“New orders inflows fell in August at the sharpest rate for 14 months, with export orders declining at the steepest rate for a year,” the market research firm reported.
The purchasing index from the Institute for Supply Management advanced on the month but fell short of expectations, coming in at 47.2 from 46.8 in August.
A survey respondent from the chemicals sector said there was a “noticeable slowdown in business activity. Staffing and production rationalization has been triggered. Previous optimism about future growth has been dashed.”
Markets were down significantly on the news, with the Dow Jones Industrial Average of major U.S. stocks dropping more than 450 points in Tuesday morning trading. The S&P 500 index was down more than 1.5 percent.
The U.S. economy is likely at an inflection point following an uptick in unemployment in July, which rose to 4.3 from 4.1 percent, triggering an important recession indicator called the Sahm rule.
The Fed has left interest rates between 5.25 and 5.5 percent for the last year as the economy has boomed during the postpandemic recovery. But elevated borrowing costs appear to have taken a toll on labor conditions, and the Fed is widely expected to start cutting rates in September.
Markets expect a quarter-point cut over a half-point cut with a probability of 63 percent versus 37 percent, according to futures contract prices measured by CME Group’s FedWatch algorithm.
Slack is also appearing in commodity markets, as the August S&P Global PMI commodity price and supply indicators delivered the fewest reports of commodity shortages within global manufactures since early 2020.
“Reports of both price pressures and supply shortages remained subdued midway through the third quarter, with the respective indices easing slightly on the month,” S&P economist Usamah Bhatti said in a commentary.
Construction investment also fell in July, dropping to a seasonally adjusted annual rate of $2,162.7 billion from the June estimate of $2,169 billion, according to the Census Bureau. Private construction was down 0.4 percent while public construction was up 0.1 percent.
Outside of the business cycle, a secular slowdown in manufacturing construction investment may be coinciding with more regular market forces in the manufacturing sector.
Manufacturing construction investment has been skyrocketing in recent years as U.S. fiscal policy has reinvigorated the manufacturing sector, jumping to $237 billion after hovering around $80 billion between 2015 and 2020.
It’s still up more than 20 percent from July 2023 and 0.1 percent from June, but has noticeably decelerated since March. It appeared to hit a peak in August of last year before accelerating once again.
Date: |
-
Financial Times - Business
European governments offload €16bn of bailed-out bank stocks
Sales include stakes in Commerzbank, NatWest, ABN Amro and Monte dei Paschi di Siena10 hours ago -
CNBC - Business
Top Wall Street analysts pick these dividend stocks for attractive returns
TipRanks' analyst ranking service pinpoints Wall Street's best-performing stocks, including McDonald's and Chord Energy3 hours ago -
MarketWatch - Business
Lots of companies are still talking about AI. Is it doing anything for their stocks?
The artificial-intelligence bandwagon was alive and well during the second-quarter earnings reporting season, with many executives still finding ways to shoehorn the subject into their calls with ...43 minutes ago -
Financial Times - World
South Korea’s stock exchange chief defends slow start to corporate reform drive
Only 1% of 2,600 listed companies have signed up to new initiative aimed at boosting valuations12 hours ago
More from The Hill
-
The Hill - Politics
How a Trump-Musk government efficiency commission might affect NASA
Such a commission would be the perfect vehicle for looking at NASA, an agency with a storied history beset with a slew of problems.44 minutes ago - Donald Trump -
The Hill - Politics
Vance says ‘of course' Trump has a plan 'to fix American health care'
Sen. JD Vance (R-Ohio), the Republican nominee for vice president, said "of course" former President Trump has a plan to "fix American health care" in a Sunday interview and also outlined several ...54 minutes ago - Donald Trump -
The Hill - Politics
Why do most school buses not have seat belts?
School buses frequently lack a safety feature that, if you were caught not wearing one, would result in a ticket — but why?1 hour ago -
The Hill - Politics
Vance won’t say whether Trump would veto federal abortion ban: ‘I’ve learned my lesson’
Sen. JD Vance (R-Ohio), the GOP vice-presidential nominee, declined to say on Sunday whether former President Trump, if elected, would veto a federal abortion ban, saying, “I’ve learned my lesson” ...1 hour ago - Donald Trump -
The Hill - Politics
Punish the administrators, not the researchers, for campus antisemitism
Congressional appropriations committees can use federal funding cuts to punish campus antisemitism without damaging the essential need for support of basic research.1 hour ago