US factory activity contracted in July for a ninth-straight month, reflecting tepid demand for American merchandise at home and abroad.

The Institute for Supply Management's gauge of factory activity edged up to 46.4 last month, according to data released Tuesday. Readings less than 50 indicate contraction, and the latest figure came in just below expectations.

Measures of new orders and production improved in July, with the former rebounding to a nine-month high. Even so, both remained in contractionary territory. The group's gauge of exports, meanwhile, fell to its lowest level this year as outbound shipments of US goods continued to decline.

While other parts of the economy remain firm, high interest rates paired with an ongoing rotation in consumer preferences toward services have stifled the manufacturing sector. Sluggish demand abroad has proved to be an additional headwind.

The widespread weakness in the sector has forced factories to reduce headcount. The group's gauge of employment tumbled to 44.4, the lowest reading since July 2020.

The broader labor market, however, remains strong. The government's monthly jobs report, out Friday, is expected to show US employers added 200,000 jobs last month.

The ISM report showed raw materials prices fell for a third-straight month in July, reflecting normalizing supply chains. Inventories contracted at a slower pace, while supplier deliveries quickened.

The near-term manufacturing outlook remains bleak, but federal investment is poised to bolster the sector in coming years. Legislation championed by the Biden administration, like the infrastructure bill, the Inflation Reduction Act and the CHIPS Act, has already led to a wave of investment in construction and manufacturing, boosting economic growth in the second quarter.

Source : Bloomberg