ISM: U.S. Manufacturing Was Flat in July

Aug. 1, 2011
Purchasing managers index dropped from 55.3 to 50.9.

The U.S. manufacturing sector was flat in July, according to a closely watched index released on August 1, in another sign of how the economy has stalled.

The Institute of Supply Management's indexed survey of purchasing managers was at 50.9, down from 55.3 in June. A reading above 50 indicates expansion, according to ISM.

But new orders fell to 49.2 on the index, implying a contraction.

"Despite relief in pricing, however, several comments suggest a slowdown in domestic demand in the short term, while export orders continue to remain strong," the institute said in a news release.

"Manufacturing posted very strong growth from January to April but the pace of growth has decelerated markedly since that time and appears to have nearly flattened out by July," said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI. Some of the late spring and early summer doldrums were caused by supply chain issues related to getting automotive and semiconductor imports from Japan, and transportation delays due to spring flooding in the Midwest. But the underlying problem is that the economy is growing very slowly. GDP was nearly unchanged in the first quarter (0.4%) and grew only at a 1.3% annual rate in the second quarter of 2011.

"Commodity inflation eroded consumers' spendable incomes at a time when they were working through debt problems and state and local governments cut spending to solve budget problems," he added. "Although the ISM report is gloomy, we expect manufacturing activity to improve. Motor vehicle production schedules are increasing as parts are more available and inventories remain low. In addition, business equipment spending has been, and is expected to remain, relatively strong. Profits are high and firms are willing to invest to upgrade their operations to take advantage of accelerated depreciation."

The figures came on the tail of the government's dismal reading for the overall economy in the first half.

On July 29, the government said the U.S. economy grew at a dead-pace 0.4% in the first quarter and only 1.3% in the second quarter of 2011, far worse than expected.

Copyright Agence France-Presse, 2011

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