US manufacturing activity contracts for a fifth straight month

US manufacturing activity shrank in August for a fifth month, reflecting faster rates of declines in orders and production.

The Institute for Supply Management’s manufacturing gauge edged up 0.4 point to 47.2, data out Tuesday showed. A reading below 50 indicates contraction.

The group’s measure of production slid for a fifth month – deeper into contraction territory – to the lowest level since May 2020. The gauge of new orders, which showed bookings are shrinking, dropped to a 15-month low. Export orders also shrank at the fastest rate since the start of the year.

Declining orders and a persistent retreat in backlogs remain headwinds to production and illustrate a struggling manufacturing sector. While the ISM gauge of factory employment rose, it still showed a third month of contraction.

Elevated borrowing costs and uncertainty surrounding the November presidential election are prompting some companies to hold off on capital expenditures and hiring. Still, Federal Reserve policymakers are expected to begin lowering interest rates later this month, which should offer some relief.

Costs also remain a headache. The ISM index of prices paid for materials rose to a three-month high of 54 in August from 52.9. After declining for most of 2023, the gauge of input costs has shown rising prices every month this year.

One favorable development in the latest ISM data is that manufacturing customers are better managing their inventory levels. A gauge of customer inventories has shown shrinking stockpiles every month since late last year.