U.S. factory activity gauge suggests stabilization at weak level

A measure of U.S. factory activity shrank less in August than a month earlier in a hopeful sign that the malaise in manufacturing is no longer deepening.

The Institute for Supply Management’s manufacturing gauge edged up to a six-month high of 47.6, from 46.4 in July, according to data released Friday.

Readings below 50 indicate contraction.

The group’s gauge was helped by an increase in the production index to a three-month high of 50, as well as improvements in measures of employment and supplier deliveries.

While the overall gauge of manufacturing has contracted for 10 straight months, the figures hint conditions are stabilizing at weak levels.

Producers are starting to see some signs of relief after companies made strides reducing an inventory overhang and consumer spending on merchandise picked up.

“The August composite index reading reflects companies managing outputs appropriately as order softness continues, but the month-over-month increase is a sign of improvement,” Timothy Fiore, chair of the ISM manufacturing survey committee, said in a statement.

Manufacturers’ inventories shank, matching the fastest pace of contraction since the start of 2014.

Customer inventories also shrank. That’s consistent with recent data showing greater progress in reducing unsold goods.

The share of manufacturers that said their customers’ inventories were “about right” rose to 67.6%, the highest since February 2020.

The government’s revised second-quarter growth figures showed inventories fell for the first time in nearly two years.

Producers are also finding relief in declining commodities prices. The group’s index of prices paid for materials showed costs fell for a fourth month, though at a slower pace in August.