Service Sector And Manufacturing Reports: Strong Demand, Strong Activity, Capacity Stress

New order growth is strong and backlogs continue to pile up in a PMI manufacturing report led by another solid reading in the mid-50s, at 55.3 for final July. Orders, however, are centered in the domestic economy with export sales flat. Production and employment slowed in the month though business confidence remains strongly positive.

Signs of stress are apparent with delivery times the longest in this survey's records. And input costs are on the rise with pass through to customers at a 7-year high.

The text of the report is clearly downbeat warning, as it first did back in June, that manufacturing is beginning to struggle with supply shortages, rising prices and weak exports.

...meanwhile...

A useful easing in what were enormous and perhaps unsustainable rates of growth is the theme of ISM's manufacturing report for July. The headline pretty much tells the story, at a very strong plus-50 score of 58.1 but right at the low end of expectations and more than 2 points down from an overheated June.

The biggest factor in the index's decline is improvement in July deliveries where delays in June were among the very strongest in the long history of this report. But new orders also slowed though only slightly and at 60.2 remain robust. Growth in backlogs also slowed but likewise remains very favorable. Production eased back while inventories of raw materials rose, perhaps reflecting intentional stockpiling to avoid shortages. Risks of tariffs and high steel costs remain the sample's key concerns.

A contrast between this report and the PMI manufacturing report is exports, strong in this report and weak in the latter. Otherwise the themes of both are the same: strong demand, strong activity, and capacity stress.