U.S. Manufacturing Sector Contracts in July for Second Time Since 2009

Economic activity in the manufacturing sector contracted in July for the second time since July 2009. However, the overall economy grew for the 38th consecutive month, according to the nation's supply executives in the latest Manufacturing ISM Report on Business. The report was issued this week by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee, Tempe, Ariz., USA.

"The PMI registered 49.8%, an increase of 0.1 percentage point from June's reading of 49.7%, indicating contraction in the manufacturing sector for the second consecutive month, following 34 consecutive months of expansion. The New Orders Index registered 48%, an increase of 0.2 percentage point from June and indicating contraction in new orders for the second consecutive month, but at a slightly slower rate. Both the Production Index and the Employment Index remained in growth territory, registering 51.3% and 52%, respectively.

The Prices Index for raw materials registered 39.5%, an increase of 2.5 percentage points from the June reading of 37%, indicating lower prices on average for the third consecutive month. A growing number of comments from the panel this month reflect a slowdown in their businesses and general concern over increasing economic uncertainty."

Of the 18 manufacturing industries, seven are reporting growth in July in the following order: Plastics and Rubber Products; Electrical Equipment, Appliances, and Components; Primary Metals; Petroleum and Coal Products; Fabricated Metal Products; Food, Beverage, and Tobacco Products; and Furniture and Related Products. The 11 industries reporting contraction in July (in order) are: Nonmetallic Mineral Products; Apparel, Leather, and Allied Products; Wood Products; Textile Mills; Miscellaneous Manufacturing; Chemical Products; Transportation Equipment; Printing and Related Support Activities; Paper Products; Machinery; and Computer and Electronic Products.

Manufacturing contracted in July as the PMI registered 49.8%, an increase of 0.1 percentage point compared with June's reading of 49.7%. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

A PMI in excess of 42.6%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the July PMI indicates growth for the 38th consecutive month in the overall economy, but indicates contraction in the manufacturing sector for the second time since July 2009, when the PMI registered 49.2%. Holcomb noted that "the past relationship between the PMI and the overall economy indicates that the average PMI for January through July (52.5%) corresponds to a 3.3% increase in real gross domestic product (GDP). In addition, if the PMI for July (49.8%) is annualized, it corresponds to a 2.4% increase in real GDP annually."

ISM's New Orders Index registered 48% in July, which is an increase of 0.2 percentage point compared with the June reading of 47.8%. This represents a contraction in new orders for the second time since April 2009, when the New Orders Index registered 46.8%. A New Orders Index above 52.3%, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

The three industries reporting growth in new orders in July are: Plastics and Rubber Products; Food, Beverage, and Tobacco Products; and Primary Metals. The 13 industries reporting a decrease in new orders during July (in order) are: Nonmetallic Mineral Products; Apparel, Leather, and Allied Products; Wood Products; Textile Mills; Machinery; Petroleum and Coal Products; Electrical Equipment, Appliances, and Components; Miscellaneous Manufacturing; Chemical Products; Paper Products; Transportation Equipment; Computer and Electronic Products; and Fabricated Metal Products.

ISM's Production Index registered 51.3% in July, which is an increase of 0.3 percentage point compared with the 51% reported in June. This indicates growth for the 38th consecutive month. An index above 51.2%, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

The four industries reporting growth in production during the month of July are: Plastics and Rubber Products; Fabricated Metal Products; Primary Metals; and Food, Beverage, and Tobacco Products. The 10 industries reporting a decrease in production in July (in order) are: Nonmetallic Mineral Products; Wood Products; Textile Mills; Furniture and Related Products; Apparel, Leather, and Allied Products; Petroleum and Coal Products; Miscellaneous Manufacturing; Chemical Products; Machinery; and Transportation Equipment.

ISM's Employment Index registered 52% in July, which is 4.6 percentage points lower than the 56.6% reported in June. This is the 34th consecutive month of growth in the Employment Index. An Employment Index above 50.5%, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, nine reported growth in employment in July in the following order: Petroleum and Coal Products; Primary Metals; Furniture and Related Products; Electrical Equipment, Appliances, and Components; Machinery; Fabricated Metal Products; Miscellaneous Manufacturing; Chemical Products; and Computer and Electronic Products. The four industries reporting a decrease in employment in July are: Nonmetallic Mineral Products; Apparel, Leather and Allied Products; Paper Products; and Transportation Equipment.

The Inventories Index registered 49% in July, which is 5 percentage points higher than the 44% reported in June. This month's reading indicates that respondents are reporting inventories are still contracting, which has been the case in nine of the last 10 months. An Inventories Index greater than 42.8%, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The seven industries reporting higher inventories in July (in order) are: Petroleum and Coal Products; Machinery; Furniture and Related Products; Paper Products; Computer and Electronic Products; Fabricated Metal Products; and Electrical Equipment, Appliances, and Components. The eight industries reporting decreases in inventories in July (in order) are: Nonmetallic Mineral Products; Primary Metals; Apparel, Leather, and Allied Products; Miscellaneous Manufacturing; Transportation Equipment; Printing and Related Support Activities; Chemical Products; and Food, Beverage, and Tobacco Products.

The full text version of the Manufacturing ISM Report On Business is available online.

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