The U.S. National Association of Purchasing Managers report came in lower than expected this morning, sparking fears about the duration of the U.S. slowdown.

After briefly rebounding in June, the July NAPM index slipped to 43.6 from 44.7, below consensus expectations. “Today’s NAPM report continues to suggest that the health of the U.S. factory sector remains in critical condition,” says CIBC World Markets. “Lower interest rates alone will not be enough to help pull the U.S. manufacturing sector out of its protracted slump.”

As we expected, the main component driving the headline lower in July was the new orders index, which dipped to 46.3 from 48.6 the previous month, says CIBC, signaling yet another drop in third-quarter factory activity. “There was a slight improvement in the production index, but with fewer orders in the pipeline, expect more reported declines in this series as early as next month.”

The employment index rose, which may suggest fewer manufacturing layoffs in Friday’s non-farm payrolls report. Inventories are also down. Both these factors are positives for the economy.

“Purchasing managers are also indicating that cost pressures are still easing, reflecting the growing slack in the global economy,” notes CIBC. “Today’s NAPM report is consistent with our expectation that the U.S. manufacturing sector will continue to remain a drag on U.S. economic growth, holding the third quarter real GDP pace to around 1.5%.”