US Manufacturing PMI Contracts for 5th Consecutive Month, Fueling Recession Concerns

The US manufacturing sector has shown a weaker-than-expected performance, with the August manufacturing Purchasing Managers’ Index (PMI) contracting for the 5th consecutive month. According to the Institute for Supply Management (ISM), the August PMI recorded 47.2, a slight improvement from July’s 46.8 but below market expectations of 47.9.

The new order index was 44.6, lower than the previous month (47.4), and the production index was 44.8, lower than the previous month (45.9), the lowest since May 2020. The input cost index was 54.0, up from 52.9 the previous month, due to factors such as rising freight rates.

Timothy Fiore, chairman of the ISM Manufacturing Survey Committee, stated that companies are reluctant to invest in equipment and inventory due to uncertainty surrounding current US monetary policy and the election.

S&P Global PMI Also Contracts

The separate August manufacturing PMI released by Standard & Poor’s (S&P) Global recorded 47.9, which was not only lower than the previous month (49.6) but also below market expectations (48.0).

Chris Williamson, chief economist at S&P Global Market Intelligence, noted that the further decline in PMI data shows that manufacturing is becoming a further drag on the economy through the middle of the third quarter. He added that the trend could strengthen in the coming months.

Construction Investment Falls

The US Commerce Department’s Census Bureau announced that construction investment in July fell 0.3 percent from the previous month, adding to concerns about the economy.

Stock Market Reacts

The New York stock market closed sharply lower on the first trading day of September as recession concerns surfaced. The three major indices, including the technology-heavy Nasdaq Index (-3.26%), the S&P 500 Index (-2.12%), and the Dow Jones Industrial Average (-1.51%), all fell significantly.

Stocks of semiconductor-related stocks, including Nvidia (-9.53%), which led the artificial intelligence (AI) boom rally, also plummeted.

Interest Rate Expectations

As investors piled into bonds instead of stocks, Treasury yields fell, with the yield on the 10-year Treasury note, a benchmark for market interest rates, falling 7 basis points (1 basis point = 0.01 percentage point) to 3.84%.

According to the Chicago Mercantile Exchange (CME) FedWatch, the interest rate futures market is recording 62% of expectations for a 0.25% point rate cut in September, down from the previous day (70.0%). The expectation for a 0.5% point cut rose from 30.0% to 38.0%.