Manufacturing Falters In June - July 2, 2012
The manufacturing sector, heretofore one of the stronger areas in the fragile U.S. economic expansion, stumbled in June, registering its first decline since July of 2009, when the nation was just emerging from the long and painful recession.
In all, the survey for June of this year, which was issued by the Institute for Supply Management, a trade group, came in at 49.7. That was narrowly below the dividing line of 50.0, which separates an expanding manufacturing sector from one that is shrinking. For 35 months straight, manufacturing had increased, that is scoring above 50.0. This latest setback was unexpected.
By comparison, manufacturing had come in at a solid, but not strong, 53.5 in May, or slightly above the 12-month average of 52.6. Expectations had been that this index, which now has ranged from a high of 54.8 in the past year, to the aforementioned June low of 49.7 in June, would have come in at 52.0.
Leading the way down for the index were individual declines in new orders, supplier deliveries, inventories, prices, backlogs, and exports. The drop in new orders was especially large, going from a reading of 60.1 in May to just 47.8 last month. Not one area perked up last month, with only the pullback in supplier deliveries actually lessening nominally.
As for the meaning of the index, known officially as the Purchasing Managers Index, or the PMI, a reading above 42.6 percent, over a period of time, generally indicates an expansion of the overall economy. That is what we continue to see, with aggregate growth now in place for 37 months.
As for what individual purchasing managers are saying, in plastics and rubber products, some are indicating that there is a contraction in raw materials pricing. In computers and electronic products others are seeing sales trending downward. There has been a slowing, at the same time, in transportation equipment. However, strength is still being seen in machinery.
On the whole, however, this was a very disquieting report, and could cast some doubt on the viability of the current sluggish economic expansion on our shores.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.