The normalisation of global supply chains helped to boost vendor performance and bring down cost pressures in July. As a result, manufacturers reduced their output charges for the second month running. Survey respondents often commented on a headwind to business activity from rising interest rates, elevated inflation, and more caution among clients due to the uncertain economic outlook, S&P Global and the Chartered Institute of Procurement and Supply (CIPS) said in a joint press release.
Manufacturing production fell for the fifth successive month and at the steepest pace since December 2022. Goods producers mostly noted that lower demand and overstocking among clients had weighed on their production requirements in July. New business volumes across the private sector stalled in July, thereby ending a five-month period of expansion. Marginal growth in the service economy was offset by falling manufacturing sales. Survey respondents typically noted inventory reduction and the impact of rising borrowing costs on spending decisions. Some firms commented on subdued demand in overseas markets, especially European clients.
Total new export orders decreased at the steepest pace since November 2022, reflecting weaker trends in both the manufacturing and service sectors. July data pointed to a further reduction in unfinished work as softer demand, improving supply conditions, and greater business capacity helped to reduce backlogs. The latest decline in work-in-hand (but not yet completed) was the fastest since June 2020.
Private sector employment has risen in each of the past four months, but the rate of job creation eased since June. Around three times as many or 15 per cent of manufacturers reported improving supplier lead times as those that signalled a deterioration in July at 5 per cent. The resulting seasonally adjusted Suppliers’ Delivery Times Index was above the 50.0 no-change value for the sixth month running.
Average cost burdens meanwhile increased sharply during July, but the overall rate of inflation dropped since the previous month and was the weakest since February 2021. Manufacturers reported a fall in purchase prices for the third month running. Goods producers often commented on lower freight rates, energy costs, and metals prices.
Private sector companies indicated a robust rise in their average prices charged in July. The rate of inflation has now eased in five of the past six months.
Finally, business activity expectations moderated for the third month running in July. The degree of positive sentiment regarding growth prospects for the year ahead is now the weakest since December 2022.
“Rising interest rates and the higher cost of living appear to be taking an increased toll on households, dampening a post-pandemic rebound in spending on leisure activities. Meanwhile, manufacturers are cutting production in response to a worryingly severe downturn in orders, both from domestic and export markets,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
“Global supply chains are returning to normal after years of pandemic shortages and rising costs. Stocks of unused goods built up to help manage Brexit, the pandemic, and most recently global shipping disruption are finally being run down. Manufacturing input costs are falling, and supplier performance is improving at the fastest rate we have ever seen. This renewed supply chain agility, combined with falling raw material and transportation costs, could not have come at a better time for business,” said Dr. John Glen, CIPS chief economist.
ALCHEMPro News Desk (NB)
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