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ISM reports lower manufacturing numbers for second straight month

By Jeff Berman, Group News Editor
August 01, 2012

On the heels of June, which registered its lowest monthly reading in three years, July’s Manufacturing report on Business from the Institute for Supply Management (ISM) was fairly flat in comparison.

The PMI, ISM’s index used to measure manufacturing activity, was 49.8 in July, marking a 0.1 percent gain over June. A reading of 50 or higher indicates growth is occurring. Economic activity in the manufacturing sector had expanded for 34 straight months prior to June’s contraction and overall economic activity has expanded for 38 straight months.
July was below the 12-month average of 52.5 and marked the second time it had been below 50 since July 2009.

New Orders, which are often referred to as the ‘engine’ which drives manufacturing, increased by 0.2 percent to 48.0 and was preceded by June’s 12.3 percent drop-off from May’s 60.1, which was its highest level since April 2011. New Orders had not seen this type of drop since October 2001, when it fell 12.4 percent.

Production was up 0.3 percent at 51.3, and Employment was down 4.6 percent at 52.0.
Each of these metrics were in the 50’s, pointing to continued positive growth. A Production index above 51.2 percent is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures, according to the ISM. And an Employment index more than 50.5 percent is generally consistent with an increase in the Bureau of Labor Statistics data on manufacturing employment.

“There is essentially no change from last month,” said Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, in an interview. “It is certainly disappointing that we are seeing contraction for two consecutive months for the first time in three years, but, nevertheless, it is just a touch below 50 and with that the economy is still growing. But manufacturing is in a flat spot right now.”

New Orders, said Holcomb, are several points down from where it has been, considering May checked in at 60.1, which was its highest level since April 2011.
And with New Orders contracting two months in a row, Holcomb said it is a true reflection of what is happening domestically as well as from an import and export perspective, which were down 1.0 percent and 3.0 percent, respectively, in June.

In addressing the 4.6 percent decline in Employment, Holcomb said it is consistent with other employment data that has been released in recent months. But the Employment index is above 50, which he said points to continuing optimism on the part of manufacturing not wanting to be caught short from an employment standpoint.

July Supplier Deliveries dipped 0.2 percent to 48.7, while Inventories rose 5.0 percent to 49.0.

“The gain in Inventories is probably a reflection of an unwanted inventory increase, as opposed to purposely beefing up inventories to support future demand,” said Holcomb. “In that sense, it is not a good number this time, but it is not troublesome either.”

Prices moved up 2.5 percent to 39.5. While gasoline prices have been on the rise for the last four weeks, Holcomb said it will take a while for that increase to be reflected in the index. But with prices largely down the last three months, Holcomb said it gives manufacturers the opportunity to buy inventory at significantly lower prices for various commodities like metals and steel, among others.

The bad part of lower prices, though, said Holcomb, is that it is a reflection of soft overall demand.

Given the slowing down of manufacturing activity in recent months, one ISM member respondent in the apparel, leather, and allied products sector noted that the U.S. economy “seems stuck—at best—with little to no growth.” Another respondent in the wood products sector observed that he has seen a marked slowing in business overall.

When asked if the renewed economic slowdown has caught up to manufacturing, Holcomb said that might be the case.

“I think one could argue that what we are seeing around the world in China and in Europe with their struggles is not reflected in our numbers and ultimately that is going to happen, because we are all connected globally these days,” he said. “We are a reflection of the global economy more so than we have been in the past.” 

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


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