By Geoffrey Smith
Investing.com -- U.S. manufacturing expanded for the 27th month in a row in August, defying fears that the economy may be headed for a recession under the impact of Federal Reserve interest rate hikes.
The Institute for Supply Management's monthly purchasing managers index remained flat at 52.8, a level it has now stuck at for three months. That suggests that the loss of economic momentum seen earlier in the year is flattening out.
The survey was notable for a surprise increase in new orders as companies' pricing power began to wane. The PMI's orders subindex rose for the first time in three months, to 51.3 from 48.0. That went hand in hand with a sharp fall in the PMI's prices subindex from 60.0 to 52.5, its lowest since July 2020.
"Prices expansion eased dramatically in August, which — when coupled with lead times easing — should bring buyers back into the market, improving new order levels," ISM Chair Timothy Fiore said in a statement.
The figures also pointed to an improved employment outlook after three months in which businesses had indicated a higher rate of lay-offs.
"Companies continued to hire at strong rates in August, with few indications of layoffs, hiring freezes or head-count reductions through attrition," Fiore said.
The employment subindex rose from 49.9 to 54.2, its highest in five months.
"This is a pleasant surprise, showing yet again that the regional Fed and PMI surveys are not always a reliable guide to the national picture," said Ian Shepherdson, chief economist with Pantheon Macroeconomics in a note to clients.
However, others cautioned that the sector still faces a tough time in the coming months, as rising borrowing costs start to bite, especially through the export channel by making U.S. exports more expensive. New export orders were one of the big weak spots in the report, falling 3.2 points to an index level below 50, suggesting that they fell in overall terms.
"The final months of 2022 will be quite challenging for manufacturers," said Oxford Economics' Oren Klachkin. "Soft domestic demand and recession worries will weigh on growth while supply chain struggles continue to bite. Cost pressures will stay fairly high and hawkish Fed policy will put upward pressure on interest rates."
The ensuing strength of the dollar - which hit a new 24-year high against the yen earlier on Thursday - means that "manufacturers can't look to overseas markets to offset domestic weakness," he said.
"As a result, growth will be fairly sluggish heading into year-end, and we are downbeat on 2023 prospects as risks remain tilted to the downside."