The ISM survey's new orders measure slipped to 53.7 last month from 56.7 in July. The pullback in orders did not ease the pressure on supply chains. The survey's supplier deliveries index increased to 59.3 from 58.9 in July. A reading above 50 indicates slower deliveries. The supply constraints meant inflation at the factory gate remained high last month.
Broad price increases
The survey's gauge of prices paid for inputs was unchanged at 71.1, suggesting inflation could stay above the U.S. central bank's 2% target for a while.
Prices continued to increase for a range of goods, including aluminum, steel, copper products, electrical components, fuel, memory components and semiconductors. Copper, electrical components, steel and electronic components were among the goods that remained in short supply.
Fed Chairman Kevin Warsh said last Friday the central bank will "have work to do" if policymakers don't get the confidence they need that inflation is falling to the 2% target.
Financial markets are pricing in a roughly 66% chance that the Fed will raise its benchmark overnight interest rate by 25 basis points at its September 15-16 meeting, according to CME Group's FedWatch tool. The Fed funds rate is currently in the 3.50%-3.75% range.
Job openings, a measure of labor demand, had risen by 89,000 to 7.271 million by the last day of July, the Labor Department's Bureau of Labor Statistics said in its Job Openings and Labor Turnover Survey, or JOLTS report. Data for June was revised lower to show 7.182 million unfilled positions instead of the previously reported 7.359 million.
But the response rate to the JOLTS survey has dropped to just above 30% from around 58% before the COVID-19 pandemic. Some economists have also said the JOLTS survey could be overcounting job openings. The BLS pushed back against criticism of the JOLTS report in a paper published last week.
The labor market is viewed as being in balance. July's rise in unfilled jobs was led by the manufacturing sector, with an additional 79,000 vacancies, nearly all of them in the durable goods industries. There were 65,000 fewer job openings in the professional and business services sector. The overall job openings rate rose to 4.4% from 4.3% in June.
Hiring dropped by 278,000 to 5.054 million in July, led by a decline of 188,000 in the professional and business services sector. The hires rate fell to 3.2% from 3.4% in June. Layoffs and discharges decreased by 119,000 to 1.666 million, with the rate easing to 1.0% from 1.1% in June. Historically low layoffs mostly account for the employment gains this year.
A Reuters survey of economists expects nonfarm payrolls to have rebounded in August after a surprise decline in July. The government will publish its closely watched employment report on Friday.
"The report reinforced the story of a no-hire, no-fire labor market," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics. "Still, labor market conditions are balanced because weak hiring is being matched by fewer workers seeking jobs."
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