Recent data paints a concerning picture for US manufacturing, raising questions about the overall economic outlook and exacerbating the challenges faced by consumers already grappling with rising prices across various sectors. The ISM Manufacturing Index hit its 5th consecutive contractionary level at 47.2, indicating a continued slowdown in the sector. New orders declined at their fastest rate since June 2023, suggesting a further weakening of demand.
Adding to the concerns, prices paid rose again, suggesting inflation may persist despite the Federal Reserve’s efforts to control it. This could complicate the Fed’s plans and potentially lead to further interest rate hikes, further squeezing consumers’ budgets.
The manufacturing sector’s struggles are already impacting businesses. Companies are reporting a slowdown in activity and reduced optimism about future growth. Some are downsizing and cutting back on hiring, while others are grappling with high input costs and concerns about consumer spending, which is being further constrained by rising prices in several key areas.
Consumers are facing a perfect storm of rising costs, impacting their living standards and financial well-being. Food and energy prices continue to climb, straining household budgets. Housing affordability is a growing concern, with rising home prices and rental costs leaving consumers with less disposable income. Healthcare, education, and childcare costs are also on the rise, making these essential services less accessible for many.
Even everyday expenses like personal care items, transportation, and entertainment are becoming more expensive, further eroding consumers’ purchasing power.
The combination of falling orders, rising inventory, increasing input costs, and widespread price increases across various sectors paints a challenging picture for both the manufacturing sector and the broader economy. Experts warn that these headwinds could intensify in the coming months, acting as a drag on overall economic growth.
In light of these developments, we have made some adjustments to our investment strategy. As such, we have increased our cash and bond holdings leading into the months of September and October. This is a prudent measure to protect our clients’ portfolios during a period of heightened uncertainty.
While the economic outlook may appear challenging in the short term, it’s important to maintain a long-term perspective. Many analysts expect the Federal Reserve to lower interest rates several times over the next two years to mitigate the effects of a slowing economy. This could provide some relief to consumers and businesses, and potentially lead to a rebound in the markets.
We remain cautiously optimistic about the future and believe that despite the current headwinds, we may yet end the year higher. We will continue to monitor the situation closely and make adjustments as needed to ensure that our clients’ portfolios are well positioned for long-term success.
Warm regards,
Vaughn Woods, CFP, MBA
Vaughn Woods Financial Group, Inc.
858.454.6900
Investors should be aware that there are risks inherent in all investments such as fluctuations in investment principal. Past performance is not a guarantee of future results. Asset allocation cannot assure a profit nor protect against loss. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Views expressed in this newsletter are those of Vaughn Woods and Vaughn Woods Financial Group and may not reflect the views of Bolton Global Capital or Bolton Global Asset Management. The information provided is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. VW1/VWA0304.