The barometer of business conditions at American factories showed a slight increase in July, but remained at depressed levels. This suggests that there has been little improvement in the industrial side of the economy.
The Institute for Supply Management’s manufacturing survey in July saw a small uptick from 46% to 46.4% compared to the previous month. However, this reading is still the lowest since the onset of the pandemic in 2020.
It is worth noting that any numbers below 50% indicate contraction. The index has remained negative for nine consecutive months, matching a dubious streak last seen during the 2007-2009 Great Recession.
Economists surveyed by the Wall Street Journal had predicted the index to be at 46.8% in June.
The Big Picture
The industrial side of the economy is unlikely to fully recover until the Federal Reserve stops raising interest rates or the threat of a recession diminishes.
As the Federal Reserve continues its battle against high inflation, it recently raised interest rates again. If price pressures do not ease, there is a possibility of further rate hikes in September.
It is important to note that higher borrowing costs have a negative impact on the economy and can even trigger a recession.
However, the service side of the economy, which includes high-tech, banking, travel, and healthcare sectors, continues to expand. This helps maintain stability in the overall U.S. economy.
Market Reaction
In Tuesday’s trades, the Dow Jones Industrial Average (DJIA) experienced mixed results with a 0.25% increase, while the S&P 500 (SPX) showed a slight decrease of -0.17%.
