US manufacturing sector index suggests slowdown in July, but underlying strength remains

US manufacturing sector report was a bit of a disappointment, especially in light of the weakness in the employment index as well as the externally-exposed import and export sub-components, with the latter consistent with the lukewarm and uneven global growth.

However, declines in many of the other sub-components are far less worrying. The slump in the price index appears once again to be related more to supply factors (including rising global oil production) than demand dynamics, with lower commodity prices likely to lift U.S. manufacturing activity, something that's suggested in the recent manufacturing plant investment figures. 

Moreover, declines in backlogs and inventories look to be at least partly associated with the unclogging of supply chains previously hindered by port disruptions.

"The fact that both production and new orders rose also adds to the silver lining on the report, with the rise in the new order to inventory spread further laying the groundwork for improvements in the coming months", says Economics TD.