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America’s manufacturing sector, which had been one of the key drivers of the recovery since the end of the recession, contracted in June for the first time in three years, according to a new Institute Supply Management report. But the overall economy grew for the 37th consecutive month.
Of the 18 manufacturing industries, less than half (seven) reported growth in June: Furniture and Related Products; Printing and Related Support activities; Fabricated Metal Products; Miscellaneous Manufacturing; Electrical Equipment; Appliances and Components; Machinery; and Primary Metals.
The nine industries that reported contaction last month include: Nonmetalic Mineral Products; Apparel, Leather and Allied Products; Paper Products, Plastics and Rubber Products, Chemical Products; Computer and Electronic Products, Petroleum and Coal Poducts; Food, Beverage and Tobacco Products, and Transportation Equipment.
The ISM’s purchasing manager index dropped from 53.5 in May to 49.7. A reading below 50 indicates contraction, but a reading above 42.6 over an extended period of time indicates an expansion of the overall economy.
New Orders posted the most dramatic drop from 60.1 to 47.8. Prices, too, posted a double-digit decrease from 47.5 last month to 44.5. Exports dropped from 53.5 to 47.5.
Customers’ Inventories showed the biggest gain, increasing five points to 48.5.
Contraction of the American manufacturing sector coincides with other troubling economic indicators, include a weak May jobs report and cautious consumer spending. Further, analysts point out, the ripples Europe’s ongoing eurozone crisis and a contraction of China’s economy are also reverberating in American factories.
Purchasing managers quoted by ISM expressed concern as well as cautious optimism. A Chemical Products respondent said, “Slowing world economies, particularly China, are reducing 3Q and later orders and drastically dropping some raw material prices.” A Machinary purchasing manager said, “Business is still strong, with some nagging question whether it will be sustained.” A respondent from Apparel, Leather and Allied Products offered, “Although our shipments are up year over year and from prior month, we can feel some headwinds, especially from Europe. We are watching our expenses very tightly and being cautious.”
Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.
