Increasing signs of market weakness also led to cutbacks in purchasing activity and inventory holdings, as manufacturers aimed to protect cash flow and operate on a leaner footing, according to the PMI.
The seasonally adjusted PMI fell to 45.3 in July, its lowest reading in the year-so-far and joint-weakest since May 2020. The PMI has remained at a sub-50.0 level – signalling a deterioration in operating conditions – in each of the past 12 months.
July saw levels of manufacturing output and incoming new business contract further. The downturn was widespread by sector, with all three broad product categories covered (consumer, intermediate and investment goods) seeing declines in both variables.
Companies linked the downturn to domestic and overseas market weakness, overstocked clients looking to reduce their holdings and efforts among manufacturers to streamline their own operations.
The level of new export business fell for the 18th month running and at one of the quickest rates over the past three years. Companies reported that a general weakening of global market conditions was adversely impacting demand from most geographical regions.
Manufacturers continued to forecast brighter conditions in future despite the current tough operating environment. Around 53% reported that they expect output to rise over the coming year, with the degree of positive sentiment edging up from June's six-month low.
Confidence was linked to an expected improvement in market conditions, new product launches, planned investment spending and marketing strategies. July saw manufacturing employment reduced for the 10th consecutive month. The rate of job losses accelerated to a seven-month high.
Marked cuts were seen at consumer and intermediate goods producers, while job creation in the investment goods category eased to a near standstill pace. Sufficient spare capacity remained to make further steep inroads into backlogs of work, however. Outstanding business fell for the 15th month in a row and to one of the greatest extents during that sequence.
Companies linked lower staffing levels to demand weakness, strong competition and efforts to protect margins. These factors also contributed to decreased purchasing activity and efforts to operate with leaner inventory holdings (a number of companies reported being overstocked).
Weaker demand for inputs led to a further quickening of average vendor delivery times in July. Supplier performance improved for the 6th month in a row, with lead times shortening in the consumer, intermediate and investment goods sectors.
The extent of the improvement also remained high by the historical standards of the survey, albeit weaker than in recent months.
Average input prices fell for the 3rd consecutive month in July, with the rate of decline close to June's 88-month record. A wide range of inputs were reported as down in price by manufacturers, often linked to increased competition between suppliers, weak input demand and lower transportation and energy costs.
July saw little movement in selling prices. Manufacturers reporting an increase cited efforts to recover margins following a period of marked cost inflation. Those seeing a decline mentioned strong competition, weak demand and passing on recent cost reductions.
