The US manufacturing sector contracted for the 10th consecutive month in August, but reached a six-month high, indicating a gradual easing of the sluggish situation.

On Friday, data released by ISM showed that the US ISM Manufacturing Index for August rose to 47.6, reaching a six-month high. Although it remains in contraction territory and has been contracting for 10 consecutive months, the data indicates that the manufacturing sector is stabilizing at a weak level and the downturn is no longer worsening.

The US ISM Manufacturing Index for August came in at 47.6, higher than the expected 47 and up from the previous value of 46.4 in July. The threshold for expansion or contraction is 50.

In terms of important sub-indices:

The New Orders Index decreased by 0.5 points to 46.8, down from a nine-month high of 47.3 in July. New export orders slightly increased by 0.3 points to 46.5.

The Production Index stood at 50, indicating no change, but reaching a three-month high with a 1.7-point increase from July's 48.3.

The Prices Paid Index came in at 48.4, higher than the expected 44 and significantly up by 5.8 points from the previous value of 42.6 in July. This marks the fourth consecutive month of declining cost prices, but the rate of decline slowed in August. The drop in commodity prices has relieved pressure on manufacturers, and the supply chain is normalizing.

The Employment Index rose by 4.1 points to 48.5 from the previous value of 44.4 in July, but it still remains in contraction territory. The data indicates that the widespread weakness in the manufacturing sector has forced factories to reduce their workforce, although the pace of job cuts is slowing down.

The Supplier Deliveries Index also improved, rising from 46.1 in July to the latest reading of 48.6.

The Inventories Index declined by 2.1 points from 46.1 in July to 44 in August, marking the fastest contraction rate since early 2014. The inventory sub-index is consistent with other recent data, showing greater progress in reducing unsold goods. Revised US government data for Q2 GDP shows the first decline in inventories in nearly two years.

Analysis suggests that progress in reducing excess inventory, coupled with a rebound in consumer spending, has given manufacturers some hope and signs of relief from the slump.

Following the release of the ISM data, the yield on the US two-year Treasury rebounded to a flat level above 4.86%. US stocks initially rose but later retreated.

Earlier on the same day, S&P Global released data showing that the final value of the US Markit Manufacturing PMI for August was 47.9, higher than the expected 47 and the initial reading of 47.

Chris Williamson, Chief Business Economist at IHS Markit, commented:

US manufacturers reported another difficult month in August. Following a brief respite in July, output fell again due to a sharp deterioration in orders. In fact, the speed of the decline in orders exceeded the pace of production cuts, indicating that companies will need to continue reducing output in the near future.

Meanwhile, growing pessimism about the near-term outlook has dampened hiring and led to a further sharp decline in purchasing activity.

The investigation further proves that the impact of price decline brought about by supply chain improvement has reached its peak, and prices have started to rise again in August. However, the apparent decline in demand continues to weaken pricing power and keeps overall inflationary pressure in the manufacturing sector relatively low.

With the expansion of manufacturing capacity in the United States, relevant policy measures should help boost production in the medium term.

Given the improvement in certain survey indicators such as the order-to-inventory ratio, the shift from destocking to restocking should also become evident by the end of this year.