U.S. Manufacturing Resumes Its Expansion

Aug. 1, 2006
Despite diminished consumer demand, rising interest rates and higher prices for commodities ranging from corrugated boxes to fuel oil, the manufacturing sector of the U.S. economy grew faster last month than it had in June, according to data released ...

Despite diminished consumer demand, rising interest rates and higher prices for commodities ranging from corrugated boxes to fuel oil, the manufacturing sector of the U.S. economy grew faster last month than it had in June, according to data released Aug. 1 by the Institute for Supply Management (ISM), Tempe, Ariz.

ISM's manufacturing business activity index was 54.7% in July, up nine-tenths of a percentage point from June's 53.8%. A figure above 50% indicates the manufacturing sector generally is expanding; a figure below 50% signals the sector is contracting.

"Manufacturing growth accelerated in July driven by an upswing in production following June's increase in new orders. Employment expanded after a one-month decline, while inventories grew after two months of contraction," noted Norbert J. Ore, chair of ISM's manufacturing business survey committee. "The overall message is that manufacturing is proving to be quite resilient in the face of higher interest rates and weakening consumer spending."

Nevertheless, two elements of the overall manufacturing index bear close watching. ISM's measure of new orders fell 1.8 percentage points in July to 56.1. This means that although new orders last month continued to grow for the 39th consecutive month, the pace was slower than in June.

The second element to watch is ISM's price measure. It was up two percentage points in July, meaning the costs of commodities that manufacturers buy were rising faster last month than in June. "Business remains strong, but higher raw material prices result in reduced margins," said one producer of primary metals.

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