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Aug. 8, 2012
Manufacturing Contracts for Second Straight Month
Economic activity in the manufacturing sector contracted in July for the second straight month with a PMI of 49.8 percent, just slightly below the 50 percent threshold that indicates growth, according to the latest Manufacturing ISM Report on Business from the Institute for Supply Management, Tempe, Ariz. July’s PMI improved 0.1 percent from June.
A PMI in excess of 42.6 percent, over a period of time, generally indicates an expansion of the overall economy, says ISM. “The past relationship between the PMI and the overall economy indicates that the average PMI for January through July of 52.5 percent corresponds to a 3.3 percent increase in real gross domestic product. If the PMI for July is annualized, it corresponds to a 2.4 percent increase in real GDP annually,” says Bradley Holcomb, chairman of ISM’s Manufacturing Business Survey Committee.
Of the 18 manufacturing industries, only seven reported growth in July, including fabricated metal products and primary metals. Miscellaneous manufacturing and machinery both reported declines.
The New Orders Index also registered contraction for the second straight month. The index was at 48.0 percent, an increase of 0.2 percentage points from June. Both the Production Index and the Employment Index remained in growth territory, registering 51.3 percent and 52.0 percent, respectively.
The Prices Index for raw materials registered 39.5 percent, an increase of 2.5 percentage points from June, indicating lower prices on average for the third consecutive month. The Inventories Index registered 49 percent in July, which is 5 percentage points higher than the 44 percent reported in June. Nevertheless, the reading indicates that inventories are still contracting, which has been the case in nine of the last 10 months.
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