U.S. Manufacturing Continues to Contract

May 1, 2009
ISM says decline is moderate and shows significant improvement

For the 15th consecutive month U.S. manufacturing contracted but the pace of decline was less severe than expected, the Institute of Supply Management said on May 1.

The institute said its index of the factory sector, also known as the purchasing managers (PMI) index, rose to 40.1% from 36.3% in March -- still below the 50% level that separates expansion and contraction.

"The decline in the manufacturing sector continues to moderate," said Norbert Ore, head of the ISM manufacturing business survey committee. After six consecutive months below the 40% mark, the PMI "shows a significant improvement," he said.

"This ISM report gives a sign that the worst of the decline may be over and that the inventory swing will moderate the pace of future reduction in manufacturing output," said Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI."While it is too early to believe that the recession has bottomed out, we are hopeful that a trough can be reached by the end of summer."

Craig Giffi, head of the U.S. Consumer & Industrial Products Industry for Deloitte challenges the conventional response to the monthly ISM index: "We always pay attention to this index, especially when times are bad, but this number is neither positive nor negative news," said Giffi. "It is merely a reflection of the real problem, which is that the U.S. does not have a clearly defined national competitiveness strategy to support and grow manufacturing. We continually hear people hope that things will improve. But hope is not a strategy.

"The problem, however, is that the U.S. has not yet developed a unified manufacturing competitiveness strategy, and individual companies, along with state and local governments, simply do the best they can on an increasingly unlevel playing field."

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