U.S. manufacturing activity contracted more sharply than anticipated in August, with the Institute for Supply Management’s factory index falling to 54.6 from 55.6 in July, the industry group reported on Tuesday. Economists had forecast a smaller decline to 55.2, though the index remains above the 50-point threshold that separates expansion from contraction.
The ISM’s new orders subindex posted the steepest drop, while the employment component also declined. The prices-paid index, a proxy for input costs, held steady. The data arrives ahead of Friday’s U.S. jobs report, which will provide further insight into labor market conditions.
The weaker-than-expected reading is unlikely to alter expectations for a Federal Reserve interest-rate hike in September, according to Ulrich Wort, an economist at Helaba. Wort noted that rising energy prices and renewed inflation concerns have reinforced market expectations for tighter policy. As of Tuesday, traders were pricing in roughly a 67% probability of a September rate increase, based on Fed funds futures.
