The Institute for Supply Management’s July Manufacturing Report shows manufacturing growth slowing to its lowest level in a year. New Orders fell below the 50% growth threshold for the first time in more than a year.

"The PMI registered 50.9%, a decrease of 4.4 percentage points, indicating expansion in the manufacturing sector for the 24th consecutive month, although at a slower rate of growth than in June,” said Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee “Production and employment also showed continued growth in July, but at slower rates than in June.

The New Orders Index registered 49.2%, indicating contraction for the first time since June of 2009, when it registered 48.9%. The rate of increase in prices slowed for the third consecutive month, dropping 9 percentage points in July to 59%. “In the last three months combined, the Prices Index has declined by 26.5 percentage points, dropping from 85.5% in April to 59% in July,” Holcomb said. “Despite relief in pricing, however, several comments suggest a slowdown in domestic demand in the short term, while export orders continue to remain strong."

Performance By Industry

Of the 18 manufacturing industries, 10 are reporting growth in July, in the following order: Paper Products; Furniture & Related Products; Computer & Electronic Products; Transportation Equipment; Wood Products; Petroleum & Coal Products; Printing & Related Support Activities; Primary Metals; Fabricated Metal Products; and Nonmetallic Mineral Products. The seven industries reporting contraction in July — listed in order — are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Textile Mills; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Machinery; and Chemical Products.

*Number of months moving in current direction.

PMI

Manufacturing continued its growth in July as the PMI registered 50.9%, a decrease of 4.4 percentage points when compared to June’s reading of 55.3%. The PMI registered the lowest reading since July 2009, when it registered 49%. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

A PMI in excess of 42.5%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the 26th consecutive month in the overall economy, as well as expansion in the manufacturing sector for the 24th consecutive month. Holcomb stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through July (57.6 percent) corresponds to a 5.3% increase in real gross domestic product (GDP). In addition, if the PMI for July (50.9%) is annualized, it corresponds to a 2.9% increase in real GDP annually."

THE LAST 12 MONTHS

Among the comments from ISM survey respondents:

• "Inflation pressures have finally slowed down." (Chemical Products)
• "With products sold internationally, the business conditions we are currently experiencing are declining from abnormally [high] record-breaking levels. Business conditions are currently flattening to more normal volumes, while trending slightly downward." (Machinery)
• "Market conditions — Europe weak, U.S. soft, Asia strong." (Computer & Electronic Products)
• "Demand from automotive manufacturers continues to improve." (Fabricated Metal Products)
• "Export sales very strong, while domestic sales are sluggish." (Paper Products)
• "The looming debt ceiling has government agencies backing away from spending. Forecasting a slowdown in demand in the short term." (Transportation Equipment)
• "Generally seeing a slowdown, which is typical this time of year. Hopeful that this is seasonal only." (Plastics & Rubber Products)
• "Most industrial customers seem to be sustaining their business. Export orders continue to remain strong. Price pressures persist, especially with commodity materials." (Chemical Products)

www.ism.ws

The Institute for Supply Management

" – Edited by Chris Vavra, Plant Engineering, www.plantengineering.com"

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