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June U.S. Manufacturing Index Suggests Worst May Be Over

By BridgeNews A key barometer of the health of the U.S. manufacturing economy rose in June to its best level this year, although it remained in contraction territory, indicating that growth in the sector remains sluggish but that the worst may be over. The National Assn. of Purchasing Management (NAPM) said its index of economic activity rose to 44.7 in June from 42.1 in May. The June level was above the 42.5 that economists had forecast. June marked the 11th month the main index stood below the 50.0 boom-or-bust level. A reading above 50 indicates the manufacturing economy is generally expanding and a reading below 50 signals it is generally contracting. In addition, NAPM has said that a reading below 42.7, over a period of time, indicates that the economy is contracting in general. Michael Moran, chief economist at Daiwa Securities, said that the latest NAPM report and some other manufacturing data are starting to show a bottom of the current deceleration in the sector. The direction of the purchasing managers' index is "encouraging" and "showing signs of improvement in this sector of the economy," Moran said. While the move upward in June was not "bold," the direction is clearly upward, he noted. Moran highlighted the rise in the new orders index, noting that an increase in this component will probably push other key areas such as production higher. The manufacturing sector's employment component rose to 36.3 from 35.0 in May, while the inventory index rose to 40.8 from 38.7 in May. The level for the employment index is well below what the NAPM considers as indicating growth in manufacturing employment. The manufacturing index's price component, which measures how much producers pay for materials, fell to 42.3 in June from 45.2 in May. Meanwhile, new orders and production stood at 48.6 and 46.2, respectively. In May, the new orders index was at 45.5, while the production index was at 42.7. The imports index was at 48.0 in June, up from 46.6 in May, while exports were at 45.5, compared with 45.6 the previous month. In a release, NAPM noted that the manufacturing sector continued to "struggle" in June but the rate of deceleration "slowed somewhat" during the month. In addition, NAPM noted that the decline in the price index was "encouraging" and that inventories are being worked down at a rapid rate. Norbert J. Ore, chair of NAPM's Manufacturing Business Survey Committee, noted that the overall picture for the manufacturing industry "is one of continued decline" during the month of June. But the rebound in new orders was "somewhat encouraging as it tends to lead future production. Major concerns are export markets, energy, and slowing demand in the sector," he says.

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