Reports show manufacturing activity slowing, sluggish job growth

July 06, 2012

Economists had projected that U.S. manufacturing would show a slowdown to 52 from 53.5 in May when the Institute for Supply Management released its report on July 2. In fact, the news was much worse. The ISM’s report of economic activity in the manufacturing sector contracted in June to 49.7%. This is the first time since July 2009 when the Purchasing Managers Index (PMI) registered 49.2%, that the survey has revealed a contraction.
The one bright spot is that “the Prices index for raw materials decreased significantly for the second consecutive month, registering 37%, which is 10.5 percentage points lower than the 47.5% reported in May,” commented Bradley J. Holcomb, CPSM, CPSD, chair of the ISM’s Manufacturing Business Survey Committee. “Comments from the panel range from continued optimism to concern that demand may be softening due to uncertainties in the economies in Europe and China.”
Of the 18 manufacturing industries the ISM surveys, only seven reported growth in June, and the Plastics & Rubber Products category was not one of those. Plastics & Rubber Products ranked 4th in the ordered listing of industries reporting a contraction in June. The bright spot for plastics processors is the raw materials pricing declines, and one respondent from that category noted: “Significant raw materials price correction underway.”
Not surprisingly, the New Orders index dropped 12.3 percentage points in June, registering 47.8% and indicating contraction in new orders for the first time since April 2009, when the New Orders index registered 46.8%. The Production index also fell to 51.0% in June from 55.6% in May. The Backlog of Orders index was down to 44.5% from 47.0% in May. Exports dropped 6 percentage points to 47.5% in June, from 53.5% in May.

On the jobs front, the U.S. Dept. of Labor's Bureau of Labor Statistics reported Friday that non-farm payroll employment had increased by 80,000 in June. The modest gain is said to keep pace with population growth, and the overall unemployment rate remained at 8.2%. The latest numbers continued a string of tepid growth following a more robust period from December through February when companies were adding an average 252,000 employees a month.

Markets in the U.S. and Europe were down on the news, and economists point to continued concern about contraction in Europe and slowing growth in emerging markets. Corporate profits fell in the first quarter of 2012 for the first time since 2008, due to falling profits overseas.

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