The U.S. manufacturing sector expanded in July at its softest pace in three years, mainly due to slower growth in demand and consumption, reflected by slower growth in employment, new orders and production indexes, according to new survey data from the Institute for Supply Management.
The closely watched ISM manufacturing purchasing managers' index, or PMI, registered its lowest reading since August 2016 in July, slipping to a seasonally adjusted reading of 51.2% from 51.7% in the prior month. The Econoday consensus estimate was for a reading of 51.9% in July.
The employment index declined to 51.7% in July from 54.5% in June, and the production index fell to 50.8% from 54.1%. The new orders index advanced to 50.8% in July from June's 50%.
"More respondents noted supply chain adjustments as a result of moving manufacturing from China," said Timothy Fiore, chair of the ISM manufacturing business survey committee. "Overall, sentiment this month is evenly mixed."
Meanwhile, the seasonally adjusted IHS Markit final U.S. Manufacturing PMI came in at 50.4 in July, in line with the Econoday consensus estimate but lower than the prior month's index of 50.6.
The latest reading reflected the weakest rate of growth in nearly 10 years, led by a slowdown in manufacturing output and subdued client demand, IHS noted.
Manufacturing output expanded at its slowest pace since June 2016, with firms attributing the slowdown to weaker demand conditions from earlier months, particularly those for goods supplied as inputs to other companies.
Muted client demand was attributed to challenges in the automotive industry, the effect of tariffs and hesitancy in placing orders.
Expectations for output in the year ahead slumped to the lowest level since 2012 amid concerns surrounding the global economic slowdown, geopolitical tensions and trade wars.
The latest downturn suggests the goods-producing sector is poised to weigh on the economy in the third quarter, the IHS' Chief Business Economist Chris Williamson noted.
Readings above 50% or 50 in the surveys indicate an overall monthly increase.