U.S. Manufacturing Index Reports Second Month of Contraction

ISM survey shows second month of manufacturing contraction in July, though overall economy grew.

Economic activity in U.S. manufacturing contracted in July, the second month without growth, as the Institute for Supply Management's monthly manufacturing survey registered 49.8. Any score below 50.0 indicates the manufacturing economy is generally contracting.

The monthly PMI score of 49.8 grew 0.1 percentage points from June but was shy of the consensus expectation that the score would rise to 50.4. The manufacturing data could serve as further incentive for the Federal Reserve to take action to boost the economy.

"While the U.S. manufacturing sector has outperformed its international peers over the past several months, it has not been immune to the recession in Europe, slowing growth in emerging markets and a loss of confidence at home," observed James Marple, senior economist for TD Economics. "The slight move up in the index, while positive, is not enough to assuage fears that growth is losing momentum into the dog days of summer."

The new orders index rose 0.2% to 48.0. Inventories continued to indicate contraction with a reading of 49.0, though that figure increase 5.0% from June.

Production moved up slightly from 51.0 in June to 51.3 in July, the 38th consecutive month of growth. Employment also indicated growth, at 52.0, though at a slower pace than in June.

Manufacturers continued to benefit from lower prices for raw materials. The prices index registered 39.5%, up 2.5% from June but indicating lower prices on average for the third month in a row.

Of the 18 manufacturing industries surveyed, seven reported growth in July. Plastics & rubber products led the increase, followed by electrical equipment, applaince & components; primary metals; petroleum & coal products; fabricated metal products; food, beverage & tobacco products; and furniture & related products. The 11 industries reporting contraction were led by nonmetallic mineral products and apparel, leather and allied products.

"A growing number of comments from the panel this month reflect a slowdown in their businesses and general concern over increasing economic uncertainty," noted ISM spokesman Bradley Holcomb.

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